Apr. 30, 2020

Coronavirus May Increase Risk of Insider Trading

While the coronavirus pandemic has led to historic levels of market volatility and economic uncertainty, fund managers can know one thing for sure: regulators are still paying attention. In particular, the SEC and other agencies are particularly aware of how today’s unique circumstances could lead to an increase in insider trading. Among other steps, it is essential for fund managers to evaluate and reassess their insider trading policies and procedures to avoid future SEC enforcement actions or enforcement by other governmental bodies. This article analyzes potential legal dilemmas for fund managers trading around major pandemic news; explores the potential increased scrutiny facing fund managers; and outlines the steps they can take to protect themselves and their funds from insider trading problems. For additional coverage of the coronavirus pandemic, see “How Fund Managers Can Withstand the Coronavirus Pandemic: Form ADV Filing Relief, Investor Communications and Fund Valuation Issues (Part One of Three)” (Apr. 2, 2020); and “Key Considerations for Fund Managers Responding to the Coronavirus Outbreak” (Mar. 26, 2020).

Six Ways for Fund Managers to Prepare for the SEC’s Focus on Cybersecurity and Resiliency

Like any financial services firm committed to cybersecurity, fund managers should be regularly reevaluating and revising their policies and procedures to adequately align with the cybersecurity guidelines provided by supervisory governing bodies, as well as investor operational due diligence initiatives. The SEC’s Office of Compliance Inspections and Examinations recently released its 2020 examination priorities and, separately, a report on cybersecurity resiliency. The OCIE publications, taken together, effectively detail what the examiners will be focusing on when reviewing a fund manager’s cybersecurity program. In a guest article, Martin Passante, associate at Drawbridge Partners, provides six important steps for fund managers to take in light of those two documents. For more from Drawbridge Partners, see “Lessons for Fund Managers From the SEC’s First Identity Theft Red Flags Rule Settlement” (Nov. 15, 2018).

HFLR Spring 2020 Executive Briefing Spotlights Current and Anticipated Industry Trends

As the hedge fund industry continues to adapt to a changing marketplace and circumstances, various trends, topics and concerns arise for fund managers. The ongoing coronavirus pandemic has engendered various operational and business considerations with which fund managers must deal. Ongoing legal, compliance and regulatory issues – such as SEC examination issues; fund structural matters; and legal and compliance department optimization – remain at the forefront of fund managers’ minds. For the benefit of our subscribers, Rory Sullivan, Managing Director of Acuris Risk & Compliance – Americas, moderated a discussion with William V. de Cordova, Editor-in-Chief of the Hedge Fund Law Report. Drawing on numerous conversations with hedge fund industry participants – including GCs and CCOs of hedge fund managers; law firm partners; consultants; and others – their conversation outlined the main legal, operational and regulatory trends in the hedge fund industry through Spring 2020, including the effect of the coronavirus pandemic on the hedge fund industry; issues relating to regulatory filings and proposals; fund restructurings and liquidity concerns; optimization of the legal and compliance function; vendor management; and potential future trends in the hedge fund industry. To listen to a complimentary recording of the briefing, please click here.

Stroock Attorneys Discuss CARES Act and Federal Programs Affecting Fund Managers

The coronavirus pandemic has caused unprecedented economic hardship and forced advisers to substantially reorganize their operations. To assist advisers with navigating those operational challenges, a recent Stroock program examined the federal programs available to help advisers. Those programs apply to maintenance of staffing levels; critical employment issues involving wages, hours, layoffs, unemployment benefits and compensation; payroll tax relief and other favorable tax changes; pandemic-related disclosures; implementation of business continuity plans; and compliance deadlines. The program was moderated by Stroock partner Michael S. Emanuel and featured partners Michelle M. Jewett, Howard S. Lavin, Austin S. Lilling and Eric Requenez, as well as senior counsel Richard L. Fried. This article explores the key takeaways from the program. For more from Emanuel on the impact of the pandemic, see “HFLR Webinar Covers Key Topics for Fund Manager GCs and CCOs in Light of Coronavirus” (Mar. 19, 2020).

Report Calls for Transparency and Development of Standards in the Alternative Data Market

Fund managers are increasingly looking to non-traditional data sources to inform their investment decisions. The collection and use of that so-called “alternative data” presents a number of legal, technical and ethical challenges. A recent report, jointly produced by the Open Data Institute and Refinitiv, a global provider of financial market data, reviewed the primary sources of alternative data; the key legal and ethical issues arising out of its use; and the growing need for standardization. The report offers recommendations for developing transparency and trust in the market for alternative data. This article discusses the report’s principal findings and recommendations. For a look at the SEC’s focus on alternative data use, see “Focus Areas for Private Fund Managers From OCIE’s 2020 Exam Priorities” (Feb. 27, 2020). See also our two-part series on best practices for using alternative data: “Data Gathering and Managing Data Providers” (Feb. 6, 2020); and “Mitigating Regulatory and Other Risks” (Feb. 13, 2020).

Pillsbury Adds Former SEC Enforcement Lawyer to New York Office

David Oliwenstein has joined Pillsbury’s New York office as counsel. After spending five years in the SEC’s Division of Enforcement, Oliwenstein has wide-ranging experience investigating claims of accounting misconduct, insider trading, market manipulation, algorithmic trading, disclosure issues, broker-dealer violations, cybersecurity breaches and fraud in securities issuances. He also served as a member of the SEC’s Market Abuse Unit, focusing on sophisticated insider trading schemes, complex market manipulation cases and market structure violations. For commentary from another Pillsbury lawyer, see “How Quant Funds Can Maximize Appeal to Investors While Minimizing Cyber and Regulatory Risk” (Apr. 12, 2018).