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    Aug. 15, 2024

What’s Next for the SEC and CFTC? A Look at the Latest Reg Flex Agendas

The SEC and CFTC recently issued their spring 2024 so-called “Reg Flex” agendas. The SEC items most immediately relevant to private fund advisers are the planned final rules for outsourcing; disclosure on environmental, social and governance practices; and cybersecurity risk management and reporting, Christopher S. Avellaneda, partner at Schulte Roth & Zabel, told the Hedge Fund Law Report. Potential reproposals of the Safeguarding Rule and the Predictive Data Analytics Rule could also be highly relevant to private fund managers. This article discusses the agenda items of relevance to private fund advisers, with additional commentary from Avellaneda and David Slovick, partner at Barnes & Thornburg. See “The SEC’s 2022 Reg Flex Agendas: Major Proposals and Ambitious Timelines” (Jul. 28, 2022).

Takeaways From the CFTC’s First Whistleblower Interference Case

For more than a decade, the CFTC has been receiving tips from whistleblowers and awarding some of them millions and millions of dollars for successful enforcement actions resulting from their tips. Thus, it is no surprise that the CFTC has an incentive to protect whistleblowers. It is a surprise, however, that the CFTC only recently pursued its first whistleblower interference case. A June 17, 2024, order accuses a global commodities firm of engaging in insider trading, market manipulation and impeding possible whistleblower communications between its employees and government agencies through nondisclosure provisions in its employee agreements. “This is the first CFTC action charging a company under regulations designed to prevent interference with whistleblower communications,” said Brian Young, director of the CFTC’s Whistleblower Office, in the press release announcing the settlement of this case. “This groundbreaking action demonstrates the CFTC’s commitment to protecting potential whistleblowers and puts the market on notice that the CFTC will not tolerate contractual arrangements that could impede communication by potential witnesses.” This article summarizes the matter and the terms of the settlement, with commentary on the CFTC’s action in support of potential whistleblowers from Anne E. Beaumont, partner at Friedman Kaplan Seiler Adelman & Robbins LLP. See “SEC and CFTC Received Record Number of Whistleblower Tips and Made a Record Award in 2022” (Feb. 2, 2023); and “SEC and CFTC Whistleblower Awards Continue to Grow” (Jan. 17, 2019).

Compliance 5.0: A Culture-Centered Approach

Compliance is a game of complexity and frameworks. The relationship between misconduct and organizational culture, for instance, is complex, and that is not including the overlay of industry, local, national and international cultures. A compliance program offers frameworks to create some order and to encourage or discourage certain behaviors. This guest article tackles two complex subjects – compliance and culture – and provide frameworks to help make sense of them. See “The Parallels and Distinctions Between Investigations and Culture Reviews” (May 26, 2022).

FINRA Sanctions Firm for Lax Onboarding and Email Review Practices

A firm can have the most sophisticated electronic communications monitoring system, but it will do little good if the firm fails to add new employees to that system promptly. That is apparently what happened to a broker-dealer that allegedly failed to monitor about 3.5 million emails related to nearly 700 email accounts over a nine-year period, according to FINRA’s letter of acceptance, waiver and consent (AWC) with the firm. Although the AWC concerns a broker-dealer, it offers an important reminder for investment advisers of the need to ensure that electronic communications surveillance systems are implemented correctly. This article discusses the AWC, with insights on how to avoid onboarding issues from Jaqueline Hummel, director at ACA Group, and Amy Lynch, founder and president of FrontLine Compliance LLC. See “Four Electronic Communication and Recordkeeping Traps for Hedge Fund Managers to Avoid” (Oct. 26, 2023).

SEC Commissioner Uyeda Discusses Private Offering Framework and Accredited Investor Definition

In remarks at the 51st Annual Securities Regulation Institute, SEC Commissioner Mark T. Uyeda offered his views on the existing exempt offering framework, urging the agency to eschew “paternalistic” regulations that could limit individuals’ access to investments and hinder capital raising by startup companies. He also urged the SEC to consider adopting a “sliding scale” approach to accredited investor status that would tie an individual’s access to private investments to the individual’s investment experience. This article parses Uyeda’s remarks. As usual, the views expressed were Uyeda’s own, not necessarily those of the SEC or any other commissioner. See our two part series on the accredited investor definition: “Proposed Changes and SEC Commissioner Perspectives” (Feb. 13, 2020); and “Key Takeaways for Private Fund Managers” (Feb. 20, 2020).

Alston & Bird Expands New York Office with New Investment Funds Partner

The investment funds group at Alston & Bird’s New York office has welcomed partner Heather Wyckoff. She helps form complex hedge funds; private credit funds; real estate and other real asset funds; venture capital/growth equity funds; and other private equity funds. For insights from another Alston & Bird partner, see “Vaccines and Testing in the Post‑Pandemic Workplace: Understanding the Legal Framework and Making a Balanced Plan” (Jul. 29, 2021).

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