Igor Rozenblit, co-leader of the Private Funds Unit (PFU) of the SEC Office of Compliance Inspections and Examinations, shared his expertise in a panel at PLI’s Hedge and Private Fund Enforcement & Regulatory Developments 2015 event. Among other topics covered during the session entitled “SEC Inspections and Examinations of Private Equity and Hedge Funds,” Rozenblit discussed the operations and priorities of the PFU. This article summarizes the key takeaways from Rozenblit’s remarks. For additional commentary from Rozenblit, see “Operations and Priorities of the Private Funds Unit” (Sep. 24, 2015); and “SEC’s Rozenblit and Law Firm Partners Explain the SEC’s Enforcement Priorities and Offer Tips on How Hedge Fund and Private Equity Managers Can Avoid Enforcement Actions (Part Three of Four)” (Jan. 15, 2015). Read full article …

On November 2, 2015, new partnership audit rules were enacted as part of The Bipartisan Budget Act of 2015. The new audit rules could significantly impact partnerships generally and investment partnerships in particular. Although the new rules will only become effective for audits of taxable years beginning after December 31, 2017, existing partnership operating agreements, offering memoranda, subscription agreements and side letters should be revised before then to reflect the new audit rules, and new fund documents should be drafted to comport with these new rules. In a guest article, Philip S. Gross and Matthew Tominey, partner and associate, respectively, at Kleinberg, Kaplan, Wolff & Cohen, compare existing partnership audit rules with the new rules under the Bipartisan Budget Act of 2015; explore election options that the new rules allow; and address issues and questions that the new rules present. They also provide strategies for drafting or updating key fund documents so as to take the new rules into account. For additional insight from Gross, see “Tax Court Decision Upholding ‘Investor Control’ Doctrine May Nullify Tax Benefits for Some Policyholders Investing in Hedge Funds Through Private Placement Life Insurance” (Jul. 23, 2015); and “The Impact of Revenue Ruling 2014-18 on Compensation of Hedge Fund Managers and Employees” (Jun. 19, 2014). For more from KKWC, see “Recent Cases Reduce the Impact of Newman on Insider Trading Enforcement” (May 7, 2015). Read full article …

As hedge fund managers look to access investors or investments in Europe, Latin America or Asia, Luxembourg has emerged as a significant domicile for fund formation. With a favorable tax and regulatory regime, along with structures such as UCITS funds, Luxembourg is an increasingly attractive jurisdiction, particularly for non-E.U. hedge fund managers looking to distribute to European investors in the wake of AIFMD. The Association of the Luxembourg Fund Industry (ALFI) recently held a seminar that discussed the country’s growth in the alternative investment funds industry, regulatory updates, global investment opportunities and alternative fund structures available in Luxembourg. This article captures the seminar’s key takeaways on these topics. For more from ALFI, see “NICSA/ALFI Program Considers Impact of AIFMD on U.S. Fund Managers” (Sep. 25, 2014). Read full article …

Advisers that are not scrupulous in how they present performance results to investors may face potentially dire consequences. See “OCIE Director Andrew Bowden Identifies the Top Three Deficiencies Found in Hedge Fund Manager Presence Exams and Outlines OCIE’s Examination Priorities” (Oct. 10, 2014). In an extreme example of a hedge fund manager providing investors with misleading performance information, the SEC recently settled an enforcement action against an unregistered investment adviser that, among other things, presented investors with a “misleading mixture of hypothetical and actual returns when providing the fund’s performance history” without adequate disclosure. This article provides an overview of the facts, the SEC’s allegations and the settlement terms. For another case involving improper performance advertising, see “SEC Settles Enforcement Action and Pursues Company Over Use of Backtested Performance Data” (Jan. 8, 2015). Read full article …

A court ruling may make it easier for companies to defend agreements to provide board representation to activist investors, including activist hedge funds. The Delaware Court of Chancery recently decided a motion in a consolidated shareholder litigation challenging alleged misconduct by the board of a publicly traded company after a planned merger was abandoned. Among other matters, the court ruled on allegations that the board’s adoption of certain takeover defenses and agreement with an activist investment firm that gave it board representation were improper. This article provides a brief history of the litigation, a summary of the plaintiffs’ claims and the Court’s reasoning in deciding the motion to dismiss. For perspectives on activist investing from the general counsel of the activist investment firm involved in this case, see “Assessing Board of Director Vulnerability, Protecting Against Activist Campaigns and Good Corporate Governance Are Themes at Activist Investor Conference” (Jan. 27, 2010). For a general look at activist investment funds, see “Structures and Characteristics of Activist Alternative Investment Funds” (Mar. 12, 2015). See also “Can Activist Hedge Fund Managers Provide Special Compensation to Nominees That Are Elected to the Board of a Target?” (Apr. 25, 2014); and “Drawbacks of Being a Lone Dissident on a Board of Directors, Starting an Activist Campaign and Targeting Retail Investors Are Themes at Activist Investor Conference” (Feb. 18, 2011). Read full article …

In a speech delivered at the European Regulation Forum sponsored by the Chartered Institute for Securities & Investment, Edwin Schooling Latter, Head of Markets Policy of the U.K. Financial Conduct Authority (FCA), discussed the E.U. Benchmarks Regulation and the impact the regulation is expected to have on benchmark administrators, contributors and users, including hedge fund managers. In his remarks, Schooling Latter discussed the need for benchmark regulation and the anticipated effect of the E.U. regulations, before providing advice to hedge fund managers and other market participants as to what they should be doing to prepare for the regulation and manage the risks inherent to benchmarks. This article summarizes the points raised by Schooling Latter. For insight from Schooling Latter’s colleague, see “FCA Director Summarizes 2015 Regulatory Initiatives Applicable to Hedge Fund Managers and Financial Markets” (Jan. 7, 2016); and “FCA Urges Hedge Fund Managers to Prepare for MiFID II” (Oct. 29, 2015). For discussion of the relevance of benchmarks to the hedge fund industry, see our two-part series on “The Use of Benchmarks to Measure Hedge Fund Performance by Pension Funds and Institutional Investors”: Part One (Jul. 30, 2015); and Part Two (Aug. 6, 2015). Read full article …

Richards Kibbe & Orbe announced that Steven Paradise has joined the firm as a partner in its New York office. He has regularly represented individual and corporate defendants (including broker-dealers and private investors) in securities class action litigation; government and internal investigations; and regulatory proceedings before the SEC, FINRA and other administrative bodies. For insight from practitioners at RK&O, see our two-part “Succession Planning Series”: “A Blueprint for Hedge Fund Founders Seeking to Pass Along the Firm to the Next Generation of Leaders” (Nov. 21, 2013); and “Selling a Hedge Fund Founder’s Interest to an Outside Investor” (Jan. 16, 2014); as well as our two-part series entitled “Convertible Preferred Stock: How Preferred Is It?”: Part One (Dec. 19, 2013); and Part Two (Jan. 9, 2014). Read full article …