Feb. 2, 2012

Pressure Mounts for a Repeal of the Ban on General Solicitation and Advertising by Hedge Fund Managers

Pressure appears to be mounting to repeal or relax the ban on general solicitation and general advertising applicable to hedge funds engaged in domestic private placements.  That ban has significantly constrained the ability of hedge fund managers to communicate with potential investors and others, but its repeal may have unanticipated consequences.  The impetus for the potential repeal comes from at least four quarters.  This article explains the mechanics of the ban; the four sources of pressure for a repeal; and the potential implications of a repeal for hedge fund managers, investors and others.

Scope of Supervisory Liability of Senior Legal and Compliance Professionals at Hedge Fund Managers Remains Uncertain after SEC Dismissal of Urban Action

On January 26, 2012, the SEC issued an order (Order) dismissing an enforcement action it instituted in 2009 against Theodore W. Urban, the general counsel of brokerage and investment advisory firm Ferris, Baker Watts, Inc. (FBW).  See “SEC Administrative Law Judge Holds that a Broker-Dealer’s General Counsel Could Be Held Liable as a Supervisor of a Financial Adviser Over Whom He Had No Actual Supervisory Authority,” Hedge Fund Law Report, Vol. 3, No. 42 (Oct. 29, 2010).  Many practitioners may celebrate the issuance of the Order because it nullifies the precedential value of a prior SEC administrative law judge decision, which appeared to expand the scope of supervisory duties and liability of senior in-house legal and compliance professionals.  However, the impact of the Order on the supervisory liability for in-house legal and compliance professionals at hedge fund managers still remains uncertain.  This article discusses the ALJ decision and the Order dismissing the proceedings against Urban as well as the implications of the Order for hedge fund managers.

The Changing Face of Alternative Asset Management in Switzerland

Switzerland is the third largest global centre of alternative asset management, after North America and the United Kingdom.  Around three times the size of Connecticut, the small, central European country boasts approximately 15% of global assets under management.  In a guest article, Matthew Feargrieve, leader of the Funds and Investment Services practice in the London and Zurich offices of Appleby, examines the composition of the Swiss alternative asset management market, focusing on single managers and managers of funds of hedge funds (FoHFs); reviews the current and prospective regulatory environment in Switzerland for each type of manager; and assesses the country’s future generally as a centre of alternative asset management against the backdrop of economic austerity and regulatory zeal in Europe.

Marketing Hedge Funds to European Union Investors in the Post-AIFMD Era

On January 26, 2012, K&L Gates LLP (K&L) hosted a webinar entitled, “Marketing Hedge and Private Funds in Europe” (Webinar).  The purpose of the event was to provide information about the European Union (EU) Alternative Investment Fund Managers Directive (AIFMD), a new law that significantly impacts, among other things, the marketing of hedge funds and other private funds in Europe so that fund managers can proactively evaluate their fund structuring and marketing options.  The Webinar principally focused on: (1) structures for accessing European retail, institutional and other investors via public and private offering; (2) the impact that the AIFMD is anticipated to have beginning in 2013; (3) the survival of the current private placement regime after the AIFMD becomes effective; (4) advantages and disadvantages of establishing EU-domiciled funds and EU-authorized subsidiary operations; (5) the process of becoming EU-regulated; (6) consequences of a collapse of the euro or a country’s departure from the euro zone; and (7) points of consideration for managers with euro-denominated share classes or underlying euro swaps and other exposures.  The Webinar was conducted by K&L partners Martin Cornish and Mark Perlow.  This article provided a comprehensive synopsis of the Webinar.

How Safe Is It to Ignore Foreign Tax Claims or Judgments Against Cayman Islands Hedge Funds in the Context of a Winding Up of the Fund?

Cayman Islands hedge funds are subject to no Cayman Islands tax of any nature, but they may become liable to foreign tax claims – for example through trading swaps – or they may become subject to judgments for tax imposed against them in other jurisdictions.  How should such claims and judgments be regarded by liquidators in the context of winding up the fund, whether in a liquidation imposed by the court, or in a voluntary liquidation?  Must effect be given to such claims or judgments, or can such claims and judgments simply be ignored, and the winding up completed without regard to them?  Or should the winding up only be completed once the tax claim or judgment has been abandoned by the foreign tax authority, or only with Cayman court sanction that the claim or judgment be disregarded for the purposes of the winding up?  In a guest article, Christopher Russell, Partner and head of the litigation and insolvency department of Ogier, Cayman Islands, and Shaun Folpp, a Managing Associate in the litigation and insolvency department of Ogier, Cayman Islands, address these and related questions.

FSA Imposes £7.2 Million Penalty on Hedge Fund Manager David Einhorn and Greenlight Capital for Unintentional Insider Dealing in Shares of British Pub Owner Punch Taverns Plc

The UK Financial Services Authority (FSA) has concluded that hedge fund founder David Einhorn and his Greenlight Capital Inc. (Greenlight) engaged in impermissible “insider dealing” when they sold shares of British pub owner Punch Taverns Plc (Punch) immediately following a conference call with Punch management.  The FSA concluded that, even though Einhorn had refused to sign a nondisclosure agreement before the call and believed that he had not received inside information, Einhorn should have refrained from trading in Punch shares because he should have understood that he had received inside information about the terms and timing of a proposed equity issuance by Punch.  We summarize the FSA’s conclusions and the rationale for its actions.  See generally “Use by Hedge Fund Managers of Restricted Lists, Watch Lists and Ethical Walls to Prevent Insider Trading Violations,” Hedge Fund Law Report, Vol. 4, No. 37 (Oct. 21, 2011).

Second Circuit Rules Hedge Fund VCG Is Not Entitled to Arbitration in CDS Litigation Because It Was Not a Customer of Wachovia Bank

On October 28, 2011, the U.S. Court of Appeals for the Second Circuit ruled the investment banking unit of Wachovia NA (Wachovia), Wachovia Capital Markets LLC (WCM), did not have to submit to binding arbitration with VCG Special Opportunities Master Fund Ltd. (VCG).  It reasoned that VCG, the hedge fund suing Wachovia over a $9 million credit default swap (CDS), did not constitute a “customer” of the unit.  For additional background, see “S.D.N.Y. Dismisses Jersey Hedge Fund VCG’s Claim against Wachovia Alleging Improper Demands for Collateral under a Credit Default Swap and Orders VCG to Pay Wachovia Balance of Demanded Collateral and Attorney’s Fees,” Hedge Fund Law Report, Vol. 3, No. 34 (Aug. 27, 2010), “Hedge Fund VCG Special Opportunities Fund Loses CDS Dispute with Citigroup Unit,” Hedge Fund Law Report, Vol. 3, No. 12 (Mar. 25, 2010); “Growing Wave of Credit Default Swap Litigation: Judge Rules Citigroup Did Not Cheat VCG Hedge Fund on Swap and Trims Claims in VCG/Wachovia Litigation,” Hedge Fund Law Report, Vol. 2, No. 31 (Aug. 5, 2009).

Tim Pearce and Ian Meade to Join Akin Gump’s London Funds Practice

On February 1, 2012, Akin Gump Strauss Hauer & Feld LLP announced its plan to add two partners, Tim Pearce and Ian Meade, to its London funds practice.

Senior Federal Prosecutor Greg D. Andres Joins Davis Polk’s White Collar Defense Group

On February 1, 2012, Davis Polk & Wardwell LLP announced that Greg D. Andres, a federal prosecutor and senior official with the U.S. Department of Justice, will rejoin the firm in New York.

Former Federal Prosecutors Rita Glavin and Michael Considine to Head Seward & Kissel’s New Government Enforcement and Internal Investigations Group

On February 1, 2012, Seward & Kissel LLP announced that the former head of the Department of Justice’s Criminal Division and the longtime chair of the white-collar practice at a leading national law firm have joined the firm.