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    Oct. 31, 2024

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

The first and last quarters of any year are among the busiest of a CCO’s calendar, as well as those of their respective colleagues. The sheer number of reports, filings, disclosures, deadlines, reviews and other tasks to be completed increases the probability of something falling through the cracks, which ultimately might be revealed at great cost during an SEC examination. The rigors of that six-to-seven-month stretch can be eased by proper planning. As CCOs enter the year-end period (EOY), they would be well-served to have a plan for what must get done and when. This two-part series offers a roadmap of tasks that CCOs can use to develop their own EOY compliance checklist. This first article highlights 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. The second article will offer 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. See our two-part series “A Checklist for Investment Advisers to Streamline and Organize Their Annual Compliance Program Reviews”: Part One (May 12, 2020); and Part Two (May 26, 2020).

Recent SEC Marketing Rule Sweep Targets Testimonials, Endorsements and Third‑Party Ratings

In the latest salvo of the SEC’s ongoing sweep targeting violations of Rule 206(4)‑1 under the Investment Advisers Act of 1940 (Marketing Rule), the Commission recently settled charges against nine registered advisers (Settlement Orders) that indicate the agency remains on mission and is broadening its enforcement efforts. Earlier enforcement actions primarily addressed statements relating to performance, but the most recent wave focuses on untrue or unsubstantiated statements in the context of testimonials, endorsements and third-party ratings. This article summarizes the key features of the Settlement Orders and provides additional insights from interviews with several industry experts. See our two-part series on the impact of the Marketing Rule: “What Constitutes an ‘Advertisement’ and How to Adhere to Principles‑Based Standards” (Mar. 23, 2021); and “Disclosures in Non‑Standard Calculations and Requirements When Using Promoters” (Mar. 30, 2021).

Investment Adviser Avoids Civil Penalty Due to Self Reporting, Remediation and Cooperation: True, False or Other?

The SEC recently announced that it had settled charges against an investment adviser for failing to maintain and preserve off-channel communications in breach of its recordkeeping obligations (Order). The violations in the Order are largely unexceptional. Instead, the most notable feature of the Order is that the SEC’s Division of Enforcement (Enforcement) decided not to issue a civil penalty due to the firm’s self-reporting, cooperation and remedial measures. In the accompanying press release, then‑Director of Enforcement Gurbir S. Grewal touted that the resolution “shows that the full benefits of cooperation are available in recordkeeping matters.” He went on to emphasize that the firm’s “self-reporting and prompt remedial efforts weighed heavily in [Enforcement’s] decision to recommend that the Commission not impose a penalty . . . [and that t]his resolution should serve as a model for other investment advisors that are not currently in compliance with federal recordkeeping requirements.” At first glance, the Order may seem like a panacea to beleaguered investment advisers searching for the right balance of self-reporting, cooperation and remediation to manage their SEC examination risks. In reality, however, the facts in the Order are sufficiently nuanced and bespoke to the matter at hand as to render the outcome more underwhelming than touted by the SEC. This article summarizes the key features of the Order and provides insights from experts interviewed by the Private Equity Law Report. See our two-part series on SEC cooperation credit: “Examining HeadSpin as a Framework for Optimal Remediation Measures” (Jun. 1, 2023); and “Inherent Obstacles to Fund Managers Receiving Full Credit” (Jun. 15, 2023).

Global Trends and Developments in ESG Regulations: E.U., Middle East, Asia and Africa (Part Two of Two)

Although environmental, social and governance (ESG) investing is happening on a global scale, it would be a mistake to assume that it is being approached the same around the world. The U.S. is embroiled in a politically charged pro- and anti‑ESG debate, while the U.K. and E.U. put forth increasingly sophisticated and rigid regulations to monitor ESG’s growing popularity. Alternatively, the Middle East’s favorable attitude toward ESG – as it dovetails with Shari’a-compliant investing – contrasts sharply with the comparatively nascent, and uncertain, stances toward ESG investing in Africa and Asia. Those differing approaches to ESG regulations around the globe were addressed in a recent webinar hosted by Morgan Lewis that was moderated by Carl A. Valenstein and featured his partners William Yonge, Alishia K. Sullivan, Allison Soilihi and Carol Tsuchida. This second article in a two-part series summarizes the attitudes toward ESG and recent relevant initiatives in the E.U., Asia, Africa and the Middle East. The first article detailed the status of the SEC’s recent rulemaking efforts, the Commission’s enforcement practices targeting ESG issues and the latest on the state-level anti-ESG movement, along with updates on sustainability-related rulemaking and enforcement actions in the U.K. See our two-part series “Opportunities and Challenges in ESG and Impact Investing for Alternative Asset Managers and Investors”: Part One (Aug. 24, 2023); and Part Two (Sep. 7, 2023).

Can You Trust the Data? A Cautionary Tale for the Compliance Department

A settlement between the SEC and a former investment adviser is a cautionary tale for fund managers that may not realize that common practices within the industry create opportunities for malfeasance when the data used in investor communications is insufficiently scrutinized. Along that vein, the SEC released an order accusing a former registered investment adviser and its co‑founder of making “materially false and misleading statements to investors” about its flagship fund and two feeder funds and failing to disclose a conflict of interest regarding a competing fund. This article examines the issues raised by the enforcement action and offers insights from Igor Rozenblit, managing partner of Iron Road Partners, on how to avoid the inadvertent or deliberate release of materially misleading information. A common problem, Rozenblit said, is that the compliance department of any given fund manager will review investor communications to ensure their veracity and flag anything that seems exaggerated or untrue. But owing to many factors, including a possible lack of resources or specific expertise, “compliance departments rarely check the data,” he observed. For additional commentary from Rozenblit, see “Conflicts From Managing Multiple Funds and Other Current Challenges to Effective Compliance at PE Funds” (Nov. 30, 2021); and our two-part series: “Former Co‑Head of SEC Private Funds Unit Describes His New Consulting Firm and the Regulator’s Stance on ESG” (Jul. 20, 2021); and “Former Co‑Head of SEC Private Funds Unit Details Common PE Compliance Deficiencies and Steps to Avoid SEC Scrutiny” (Jul. 27, 2021).

Willkie Farr Welcomes Private Funds Lawyer Terence Rozier‑Byrd in New York

Willkie Farr & Gallagher LLP has welcomed private funds lawyer Terence Rozier‑Byrd as a partner in its New York office. His practice focuses on the formation and operation of private funds across a wide range of alternative investment asset classes, including PE, growth equity, private credit, real estate, fund of funds, hybrid and hedge funds. For commentary from Rozier‑Byrd, see our two-part series on GP commitments: “LP Flexibility on Investment Size and Source of Funding Rests on Alignment” (Feb. 8, 2022); and “Employee Participation Introduces Complexity, LP Disclosure Issues and Structural Considerations” (Feb. 15, 2022).

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