May 26, 2022

Eleven Top‑of‑Mind Questions Surrounding the New Marketing Rule

In December 2020, the SEC adopted changes to Rule 206(4)‑1 under the Investment Advisers Act of 1940 to modernize the regulatory framework for investment advisers’ advertising and marketing practices (Marketing Rule). The SEC provided for a long transition period that ends on November 4, 2022, but nearly as many open questions remain about the Marketing Rule with about five months to go as there were at the time of its adoption. As the SEC has not given any indication that it will issue additional guidance on the Marketing Rule, it is critical for private fund managers to thoughtfully consider how they will comply and to work closely with their counsel on their individual transition plans. To help facilitate that effort, in a guest article, Akin Gump attorneys Brian T. Daly, Barbara Niederkofler and Alexandra L. Delman identify 11 of the most common unanswered questions private fund managers have confronted as they prepare to comply with the Marketing Rule. 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).

High‑Profile Risk Management Misrepresentation Could Personally Cost Portfolio Manager $13.6 Million

The SEC and CFTC previously settled enforcement proceedings against an SEC-registered investment adviser and its CEO, co‑founder and majority owner in connection with alleged material misrepresentations about risk management procedures made to investors in a fund the manager operated, which lost more than $700 million. Concurrently with the settlements, the regulators also commenced parallel civil enforcement actions against the fund’s senior portfolio manager. A jury recently found the portfolio manager liable for non-scienter-based securities, investment adviser and commodities fraud. The SEC and CFTC are now asking the court to impose more than $13.6 million in monetary sanctions on the portfolio manager. This article reviews the trial verdict and the requests for sanctions. See “SEC and CFTC Impose Stiff Penalties on Adviser for Failing to Follow Disclosed Risk Management Policies” (Feb. 20, 2020).

The Parallels and Distinctions Between Investigations and Culture Reviews

For years, fund managers have been hearing about the importance of setting the proper tone at the top and ensuring that there is a strong culture of compliance at their firms. One way to ensure tone and culture are properly established in various risk areas is by conducting a culture review. Culture reviews require a careful combination of art and science, as well as thoughtful planning, leadership commitment and establishing the right rapport with employees, according to a recent panel at the ABA’s 37th National Institute on White Collar Crime in San Francisco. This article explains the differences between cultural reviews and investigations, and it distills the insights on how to frame, define, plan and execute culture reviews. See “Leveraging Policies and Culture: A Recipe for Success” (Jun. 3, 2021).

SEC’s Proposed Climate Risk Disclosure Rules: Implications, Challenges, Timing and Pushback (Part Two of Two)

In March 2022, the SEC issued a proposal (Proposal) for rules (Rules) that would require public companies to disclose certain climate-related information. In a recent Sullivan & Cromwell program, partners Catherine M. Clarkin, Robert W. Downes, Sarah P. Payne and Marc Treviño, as well as senior policy advisor and counsel – and former SEC Chair – Jay Clayton, analyzed the Proposal’s content and the possible impact of the Rules on public companies as well as private fund managers. This second article in our two-part series discusses the broad implications of the Proposal; key challenges and timing; and the anticipated pushback. The first article covered the five key elements of the Proposal. See “Fireside Chat With SEC Chair Gensler: Three Key Disclosure Areas (Part One of Two)” (Nov. 18, 2021); and “Acting SEC Chair Outlines Commission’s Approach to ESG” (Apr. 1, 2021).