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    Nov. 14, 2024

SEC and CFTC Commissioners Call Out Impossible Standards and Ulterior Motives Driving Off‑Channel Communication Enforcement Efforts

Compliance with recordkeeping requirements is necessary and important to ensure the SEC can perform its regulatory functions. Although SEC registrants have received that message loud and clear, the SEC’s sweep targeting off-channel communications nevertheless persists. As most firms have devoted significant resources to meet their obligations, the SEC appears to be adopting inappropriately high standards to bring enforcement actions and continues to collect disproportionate civil monetary penalties. A specific SEC enforcement action arising from a recent electronic communications sweep elicited a strong joint dissent from Commissioners Hester M. Peirce and Mark T. Uyeda, who protested the standard of perfection applied by the SEC and urged the Commission to address the issue of off-channel communications through rulemaking instead of enforcement. Similar discontent is also evident at the CFTC, as a recent enforcement action by the regulator for off-channel communication violations also elicited strong rebukes from two Commissioners. This article summarizes the recent SEC sweep targeting off-channel communications; analyzes one of the specific enforcement actions that resulted in no civil penalty; outlines the dissenting SEC Commissioners’ concerns; discusses similar developments at the CFTC; and offers additional analysis and insights from Hilgers Graben partner Scott F. Mascianica and Simpson Thacher partner Michael J. Osnato Jr. See our two-part series: “Could Emojis and Video Communications Be the Next Frontier of SEC Scrutiny?” (Sep. 19, 2024); and “Compliance Practices to Overcome Recordkeeping Challenges Caused by Emojis and Video Communications” (Oct. 3, 2024).

Tips for Creating an EOY Compliance Checklist (Part Two of Two)

To adequately perform their role, a CCO needs to remain steadfastly focused on compliance issues and risks faced by their firm throughout the year. It is important, however, to differentiate between the daily compliance risks that CCOs need to monitor and the broader, more holistic ones that also require attention. Whether it is related to, among others, managing employment arrangements or service providers, the year-end (EOY) is an excellent time for CCOs to use EOY compliance checklists to ensure those matters do not slip through the proverbial cracks and become a problem in the new year. This second article in a two-part series offers tips about items to include in an EOY compliance checklist relating to personnel, regulatory developments, third parties and budgets, as well as ways to prepare for the first quarter of the new year. The first article highlighted why it is important for CCOs to use EOY compliance checklists; approaches CCOs can take to compile their checklists and calendars; and some of the documents, policies, procedures and filing requirements to address during an EOY review. See “2024 Survey Reveals Top Compliance Concerns and Common Industry Practices” (Sep. 19, 2024).

How to Approach Marketing Material Reviews

Publishing marketing materials that are subject to Rule 206(4)‑1 under the Investment Advisers Act of 1940 (Marketing Rule) brings a new level of risk to firms, and reviewing those materials can be complex and time consuming. There are steps that legal and compliance departments can take, however, to efficiently create a review process that brings those materials into alignment with Marketing Rule requirements by leveraging technology and adopting a business-minded approach to find solutions. A recent panel at the CFA Institute’s (CFA) 28th Annual Global Investment Performance Standards Conference, entitled “Marketing Material Reviews Dos and Don’ts,” provided three different perspectives on how to mitigate risks around marketing materials. The program was moderated by Karyn D. Vincent, senior head, global industry standards at CFA, and featured Johanna Anders, head of regulatory compliance at Harris Associates; Janice Kitzman, partner at Cascade Compliance; and Christine Ayako Schleppegrell, partner at Morgan Lewis. This article summarizes the key takeaways for private fund managers. For coverage of other CFA events related to the Marketing Rule, see our two-part series: “Reconsidering Key Marketing Rule Terminology and Performance Presentation Criteria” (Dec. 14, 2023); and “Parsing the Parameters and Ambiguity of Using Hypothetical Performance Under the Marketing Rule” (Jan. 11, 2024).

Planting a Seed or Securing an Anchor: Finding Success As an Emerging Manager

The PE fundraising environment remains challenging, especially for small- and middle-market managers. The increasing likelihood of a soft landing for both the U.S. and other large industrial economies, however, portends increased opportunities in 2025 and beyond. Emerging managers are perfectly poised to take advantage of that potential demand if they position themselves properly with a successful first fundraise. Securing an anchor or seed investor to begin building out a portfolio could prove the difference between a successful launch and getting lost in the crowd. Those topics were covered at the Emerging Manager Forum hosted by K&L Gates, which discussed the current and future fundraising environments; fund and business structuring considerations for emerging managers; and the benefits of anchor and seed investors, as well as how to secure them. Moderated by partners Ed Dartley and Adam J. Tejeda, the panel included Stephen Cammock, managing director of GCM Grosvenor; Lucas Fries, principal at Churchill Asset Management; Michelle Jacobi, managing director at Gatewood Capital Partners; and Jacob Walthour, CEO of Blueprint Capital Advisors. This article summarizes key takeaways from the conversation. See “How Emerging Managers Can Address Key Issues and Challenges” (Sep. 21, 2023).

Gauging European Investors’ Appetite for U.S. Funds and Considerations in Marketing to Them

Nearly half of European investments are going into U.S. markets, noted Simon Osborn, CEO of IFI Global, at a recent IFI Global program. To give U.S. managers a sense of the challenges and opportunities of marketing funds in Europe, Osborn and Lawin Chandra, CEO of PropTechAM.ai Limited, discussed the diverse European funds market; the current economic climate; key considerations for managers seeking European investment capital; investors’ allocation preferences; and choice of European fund managers, service providers, domiciles and directors. This article synthesizes their observations. See our two-part series on marketing funds in Europe: “Update on Disclosure and Reporting Requirements Under AIFMD” (May 24, 2022); and “Non‑AIFMD Options and Other Regulatory Considerations” (May 31, 2022).

Private Funds Lawyer Karen Chao Joins Weil in New York

Karen Chao recently joined Weil as a partner in the firm’s New York office. Her practice focuses on representing alternative asset managers in the formation and structuring of PE and other private investment fund vehicles. For insights from Weil, see our two-part series: “Practical Issues GPs Need to Consider Before Offering Co‑Investments” (Apr. 12, 2022); and “Potential Conflicts of Interest From Entering, Holding and Exiting Co‑Investments” (Apr. 26, 2022).

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