Jul. 21, 2022

Serious Misconceptions and Compensation Structuring Trends in the Legal and Compliance Market (Part One of Two)

The current market for legal and regulatory personnel in the private funds space is incredibly unique. Although demand for legal and compliance personnel is high, there is a significant disconnect between managers looking to hire lawyers and those attorneys interested in taking in-house legal and compliance positions. Both sides are suffering from serious misconceptions, as managers are certain they are in a buyer’s market, while the law firm associates and other lawyers believe they are in a seller’s market. In a recent interview with the Hedge Fund Law Report, David Claypoole, founder and president of Claypoole Executive Search, addressed those and other themes relating to the market for in-house legal and compliance staff. This first article in a two-part series sets forth Claypoole’s detailed insights on legal and compliance hiring trends, as well as ways in-house compensation is being structured. The second article will explore the rates of compensation for in-house personnel and trends with respect to legal and compliance staff at digital asset managers. For additional commentary from Claypoole, see our two-part interview “Is Your Legal and Compliance Team Ready?”: How Recent Developments Will Drive Demand for In-House Staff and Increase Regulatory Scrutiny (Jan. 28, 2021); and The Effect of Industry Trends on the Legal and Compliance Market and Compensation (Feb. 4, 2021); as well as our two-part series: “How Have Industry Developments Affected the Value of Legal and Compliance Staff?” (Feb. 2, 2017); and “Will Industry Deregulation Affect the Value of Legal and Compliance Staff?” (Feb. 16, 2017).

A Jury of Your Peers: Fifth Circuit Ruling in Jarkesy v. SEC Broadly Expands the Right to a Jury Trial for SEC Actions

The U.S. Court of Appeals for the Fifth Circuit (Court or Fifth Circuit) recently decided Jarkesy v. SEC. The Court’s decision has deep ramifications for the SEC that build off of other recent decisions reasserting constitutional limitations on the SEC’s authority. Specifically, the Fifth Circuit declared that SEC enforcement proceedings before an administrative law judge (ALJ) violate the Seventh Amendment’s jury-trial guarantee, that Congress unconstitutionally delegated legislative authority to the SEC when it authorized the SEC to pursue administrative enforcement proceedings and that statutory restrictions on the removal of SEC ALJs violated the Constitution. The ruling in Jarkesy is significant – it could reshape the SEC’s enforcement priorities and opens the door to a number of additional strategic considerations for defendants targeted by the SEC. In a guest article, MoloLamken attorneys Eric R. Nitz and Allison Mileo Gorsuch summarize the case, identify the key takeaways for fund managers and forecast the decision’s impact on future SEC enforcement efforts against fund managers. For more on Jarkesy, see “Fifth Circuit Decision Could Hamstring SEC Enforcement Abilities” (Jun. 9, 2022). See also our two-part series “Present and Former SEC Officials Discuss Enforcement”: Part One (Jun. 2, 2022); and Part Two (Jun. 9, 2022).

Scope of Global Sanctions From the Ukraine/Russia War and How Designated Person Standards Affect Fund Managers (Part One of Two)

Outrage over Russia’s invasion of Ukraine garnered a rare consensus in the international community, resulting in a patchwork of sanctions that mostly – but do not completely – overlap. The private funds industry has been left to scramble through interpreting those sanctions and nimbly move to remain compliant. In light of those issues, the European Fund and Asset Management Association recently hosted a webinar on the fallout from Russia’s invasion of Ukraine that featured Simmons & Simmons partners Stephen Gentle and Etienne Kowalski, as well as Seward & Kissel attorney Andrew S. Jacobson. This first article in a two-part series discusses various sanctions in the E.U., U.K. and U.S. resulting from Russia’s invasion of Ukraine that affect the asset management industry and some of the consequent compliance challenges facing fund managers. The second article will examine potential environmental, social and governance implications for asset managers; ways sanctions impact liquidity management; market interventions; and potential protections offered by investor treaties. See our three-part series on sanctions basics: “How Sanctions Regimes Work” (Jun. 16, 2022); “Their Impact on Private Fund Investors and Investments” (Jun. 23, 2022); and “How to Comply With Them” (Jul. 7, 2022).

Update on Disclosure and Reporting Requirements for Marketing Funds in Europe Under AIFMD (Part One of Two)

Since the inception of the E.U.’s Alternative Investment Fund Managers Directive (AIFMD) almost a decade ago, U.S. alternative investment fund managers (AIFMs) and others outside the European Economic Area (EEA) seeking to market to investors and manage alternative investment funds in Europe have become quite familiar with the disclosure and reporting requirements imposed by the directive. Nonetheless, those regulatory requirements are constantly evolving, as is the rate of adoption by countries in Europe and their relationship with the E.U. (e.g., Brexit). Although the regulatory requirements may appear complex and a barrier to marketing and managing funds in Europe, the hurdles may not be so difficult to clear. To assist non‑EEA AIFMs, Arnold & Porter recently hosted a webinar featuring partner Simon Firth, as well as Michael Chambers, head of prudential at Wheelhouse Advisors. This first article in a two-part series considers the operative requirements and obligations associated with marketing under AIFMD, as well as the lighter regime available to small AIFMs. The second article will detail some non-AIFMD marketing options, as well as other regulatory considerations triggered by operating in the E.U. For additional commentary from Arnold & Porter attorneys, see our two-part series: “First Steps Managers Should Take When Responding to a Ransomware Attack” (Mar. 17, 2022); and “Necessary Precautions, Compliance Considerations and Ancillary Risks to Mitigate From a Ransomware Attack” (Mar. 24, 2022).

Navigating the Intersection of Digital Assets and AML

Although the largest volume of money laundering takes place using fiat currency, most money laundering transactions are conducted using cryptocurrencies, said Peter D. Hardy, partner at Ballard Spahr, at a recent Practising Law Institute program. He and cryptocurrency experts from Chainalysis, Element Finance and Solidus Labs examined the rapidly evolving regulatory regime governing digital assets, including the current enforcement environment; sanctions and ransomware; applicability of anti-money laundering rules to banks and decentralized finance; and digital transaction tracing and investigative techniques. This article distills the speakers’ insights. See “Recent Regulatory and Market Developments Affecting Digital Asset Funds and Digital Securities” (Jul. 22, 2021).