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    Dec. 19, 2024

Compliance Corner Q1‑2025: Regulatory Filings and Other Considerations Hedge Fund Advisers Should Note in the Coming Quarter

This thirty-first installment of the Hedge Fund Law Report’s quarterly compliance update highlights upcoming filing deadlines and reporting requirements fund managers should be aware of during the first quarter of 2025. This guest article by ACA Group (ACA) consultants Grazia Gatti, Luis Garcia and Dan Campbell also discusses highlights from the SEC’s Division of Examinations 2025 Examination Priorities and a recent SEC enforcement action against an adviser concerning allegedly false and misleading statements surrounding the use of artificial intelligence. For more from the ACA, see “Navigating Substantiation of Facts, Testimonials and Performance Claims Under the Marketing Rule” (Nov. 21, 2024).

ESMA Issues Final Guidelines on Use of ESG and Sustainability Terms in Fund Names

In May 2024, the European Securities and Markets Authority (ESMA) published final guidelines (Guidelines) for the use of terms related to environmental, social and/or governance (ESG) or sustainability in fund names. As proposed, the Guidelines require, among other things, funds using ESG- and sustainability-related terms in their names to have at least 80% of their investments aligned with such terms. The Guidelines have different investment criteria for funds depending on whether a fund’s name includes transition-, social- or governance-related terms; environmental- or impact-related terms; or sustainability-related terms. This article discusses the Guidelines and how they differ from ESMA’s proposal, with commentary from Andrew Henderson, partner, and Chris Ormond, counsel, at Goodwin Procter LLP. See “Key Developments & Considerations in ESG Regulations for Asset Managers Navigating Global Compliance Duties” (May 23, 2024).

Seven Tax Issues Addressed in YA Global That Could Impact Non‑U.S. Investors (Part Two of Two)

For sponsors of private funds with non‑U.S. investors, considerable time and expense is committed to structuring those funds in a manner to mitigate, as much as possible, any adverse tax consequences that could flow through to those investors. One of the biggest risks faced by non‑U.S. investors is for them to be subject to U.S. tax on income that is treated as being effectively connected with the conduct of a U.S. trade or business. A ruling by the U.S. Tax Court (Court) in YA Global Investments, LP v. Commissioner addressed that topic in the private funds context, raising concerns about tax structuring practices that need to be modified going forward. That topic was discussed in a program hosted by Strafford CLE Webinars in a panel that featured Mayer Brown partner Mark H. Leeds, KPMG partner Jay Freedman and BlackRock’s global co‑head of alternatives tax Sarah Ryan. This second article in a two-part series analyzes the seven primary issues raised in YA Global, how the Court ruled on each item and potential alternative considerations private fund managers should weigh as to each topic. The first article summarized the tax rules implicated by YA Global, along with pertinent facts from the case that contributed to the Court’s ruling. See our two-part series: “Synopsis of the IRS Partnership Audit Process and How It Can Be Addressed in Fund Documents” (Jun. 16, 2022); and “Modifications, Amended Returns and Push‑Out Elections As Cures for Imputed Underpayments From IRS Partnership Audits” (Jun. 23, 2022).

SEC Charges Andrew Left and Citron Capital in Alleged Short‑Selling Scheme

The SEC is always on the alert for abusive short-selling practices. It commenced an enforcement action against activist short publisher Andrew Left and his firm, Citron Capital, LLC (Citron). The Commission accused Left and Citron of engaging in a fraudulent scheme to persuade readers of their research reports and recommendations to trade in the same direction as their predictions – while concealing their intent to trade in the opposite direction after their information had moved the stock price. This article details the SEC’s allegations and the DOJ’s parallel indictment of Left. See “SEC Charges Recidivist Adviser in Abusive Short‑Selling Scheme” (Mar. 14, 2024).

Preparing for and Navigating SEC Examinations

Examinations play an integral role in the SEC’s supervision of investment advisers. An ACA Group program reviewed the examination landscape, including selection of advisers for examination; the examination process; interviews and document production; interactions with SEC staff; and self-reporting. The speakers also offered tips for preparing for, and successfully navigating, an exam. Jaqueline Hummel, former director of thought leadership at ACA Group, led the discussion, which featured Neil T. Smith and Lance C. Dial, partners at K&L Gates LLP. This article synthesizes their insights. See our two-part series “Practical Guide for Private Fund Managers Navigating SEC Exams in the Biden/Gensler Era": Part One (Jul. 8, 2021); and Part Two (Jul. 15, 2021).

Former CFTC Special Counsel Rejoins Schulte in D.C.

Jacob Preiserowicz has rejoined Schulte Roth & Zabel as a partner in the Washington, D.C., office from T. Rowe Price, where he was vice president and managing counsel. Preiserowicz regularly advises hedge and private equity fund managers with respect to futures and swaps trading; the CFTC’s exemptions, registration and reporting requirements; and compliance with the requirements of the NFA, as well as CFTC and exchange rules on over-the-counter and listed derivatives. For insights from other Schulte partners, see “CrowdStrike Outage: A Test of Form PF Current Report Procedures” (Aug. 29, 2024); and “What’s Next for the SEC and CFTC? A Look at the Latest Reg Flex Agendas” (Aug. 15, 2024).

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