Jul. 8, 2021

ESG Risk Alert: Inadequate Controls, Policies and Procedures Concern SEC As Do ESG Practices Inconsistent With Disclosures (Part Two of Two)

An SEC priority has been environmental, social and governance (ESG) investing, as demonstrated by the regulator’s appointment of a task force within its Division of Enforcement and a special policy advisor, as well as the issuance of multiple statements from Commissioners. In May 2021, Chair Gary Gensler also testified before the House Financial Services Committee that ESG disclosure rulemaking was one of his top priorities, and Commissioner Allison Herren Lee delivered a speech that suggested a forthcoming climate-related disclosure framework. Amid the speeches and statements, the Division of Examinations (Examinations) recently issued an ESG-focused risk alert (Risk Alert) detailing deficiencies and effective practices observed during examinations. Managers with ESG investing programs should review the Risk Alert with an eye toward unique aspects of ESG investing that may make it more difficult to meet standards they have applied in the past to other strategies. This second article in a two-part series delves into the details of the Risk Alert, providing nuanced advice on how to avoid the deficiencies identified by the SEC staff and establish effective ESG practices. The first article described the regulatory context surrounding the Risk Alert; the familiar and unfamiliar issues it addresses; and ways to use the Risk Alert as a roadmap for possible exams and anticipated enforcement. See our two-part series on Examinations’ risk alert on compliance: “Limited Staffing, Marginalized CCOs and an Overall Lack of Resources at Fund Managers” (Feb. 18, 2021); and “Inadequate Annual Reviews, Poorly Implemented Policies and Other Key Takeaways” (Feb. 25, 2021).

Practical Guide for Private Fund Managers Navigating SEC Exams in the Biden/Gensler Era (Part One of Two)

Changes are on the horizon for private fund managers with the Biden administration in place and Gary Gensler installed as SEC Chair. During the prior administration, examinations of private fund managers tended to see issues resolved within the SEC’s Division of Examinations as opposed to through referrals to the Division of Enforcement. Gensler has started to build out his staff – including with personnel previously on record as critical of the private funds industry. In a two-part guest series, Simpson Thacher partners Meaghan A. Kelly and Michael J. Osnato, Jr., along with senior counsel Allison S. Bernbach, provide a practical guide to help private fund managers navigate SEC exams in this new environment. This first article explores general expectations as to exams and furnishes practical tips to ensure managers are ready for exams. The second article will provide additional guidance for the periods following notification of an exam, during the exam and after the exam, including responding to any deficiencies. See “Anticipating SEC and CFTC Enforcement Priorities Under the Biden Administration” (Mar. 18, 2021).

The Global Hedge Funds Landscape: Accessing Non‑U.S. Institutional Capital (Part One of Two)

At the recent Morgan Lewis Advanced Topics in Hedge Fund Practices Conference, a panel of globally based Morgan Lewis attorneys explored the international hedge funds landscape. The panel featured Morgan Lewis partners Gregg Buksbaum, Ayman Khaleq, Timothy Levin, Kenneth J. Nunnenkamp and Aaron D. Suh. This first article in a two-part series discusses the portions of the program devoted to accessing non‑U.S. institutional capital, including the role of sovereign wealth funds, direct investments and co-investments; and recent developments in the U.S. sanctions regimes affecting investment in China and Hong Kong. The second article will cover the portions of the program devoted to regional issues in Europe, Asia and the Middle East. For coverage of another panel at that conference, see “Understanding and Mitigating Risks Associated With Trading Driven by Social Media” (Jun. 17, 2021).

Navigating the SEC’s New Marketing Rule

The SEC’s new marketing rule (Marketing Rule) replaces the 1961 advertising rule and the 1979 cash solicitation rule. A recent ACA Group program analyzed the key provisions of the Marketing Rule – along with its similarities to, and differences from, the existing regime – and offered practical insights on preparing marketing materials in accordance with the new rule. The program featured David W. Blass, partner at Simpson Thacher; Jeffrey Himstreet, vice president and corporate counsel at Prudential; and Julia Reyes and Kimberly Versace, respectively partner and director at ACA Group. This article outlines the key takeaways from the presentation. See our two-part series on the Marketing Rule: “Key Takeaways for Private Fund Managers” (Mar. 18, 2021); and “Next Steps for Legal and Compliance” (Mar. 25, 2021).

Current Insider Trading Regulatory and Enforcement Environments: SEC Information Gathering and Enforcement (Part One of Two)

Insider trading is perennial focus of both the SEC’s examination and enforcement staff. A recent panel at Seward & Kissel's Seventh Annual Private Funds Forum examined the current regulatory and enforcement environment around insider trading. Seward & Kissel partner Patricia A. Poglinco moderated the discussion, which featured partners Paul M. Miller and Jack Yoskowitz, as well as counsel Philip Moustakis. This article, the first in a two-part series, sets forth the panelists’ thoughts on the various ways that the SEC obtains information about potential insider trading; SEC requests for information about trading issues; and recent enforcement activity and litigation. The second article will address the panelists’ observations on recent examination focus on insider trading policies and procedures; the development of appropriate policies and procedures for handling material nonpublic information; trade surveillance and monitoring; use of alternative data; and the prospects for enforcement activity under Chair Gary Gensler. See “Advisers Must Have Strong Insider Trading Controls or Risk SEC Sanctions” (Apr. 2, 2020).

Sidley Adds Former SEC Enforcement Official to Washington, D.C., Office

Ranah Esmaili, a former official in the SEC’s Enforcement Division (Enforcement), has joined Sidley Austin in Washington, D.C., as a partner in its securities enforcement and regulatory practice. Esmaili served as Assistant Director of the Asset Management Unit, which focuses on misconduct by private funds, investment advisers and investment companies. For further commentary from other Sidley partners, see “Briefing Outlines Regulatory and Enforcement Developments Relevant to Private Fund Advisers” (Apr. 23, 2020).