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    Sep. 17, 2026

Return of the Scienter Standard: Rule 206(4)‑8 and the SEC’s Renewed Focus on Individual Accountability

Rule 206(4)‑8 under the Investment Advisers Act of 1940 is the SEC’s primary anti-fraud tool for investment advisers to pooled investment vehicles. When the SEC adopted it in 2007, then-commissioner Paul S. Atkins unsuccessfully argued that the rule should require that charges be brought only if the SEC could prove intentional or reckless misconduct (i.e., scienter). The other commissioners disagreed and adopted the rule under the lower negligence standard. During Atkins’ current tenure as SEC chair, the Commission appears to be applying Rule 206(4)‑8 in a manner consistent with his preferred scienter-based approach and an increased focus on individual accountability. From April 21, 2025, through June 16, 2026, 15 of the 16 cases reviewed in this article included scienter-based arguments – a stark contrast to previous Commissions. Notably, the only case that did not include scienter-based fraud charges or individual charges involved a firm receiving cooperation credit, suggesting that cooperation-based credit may be essential to avoid both charges. In a guest article, StoneTurn partner Daniel Brinks details the history of Rule 206(4)‑8, analyzes the 16 enforcement actions brought during the specified period of Atkins’ tenure as SEC chair, conducts data analysis of enforcement trends across preceding SEC administrations and forecasts the tenor of SEC enforcement efforts under Atkins going forward. See “What ‘Back to Basics’ Under Chair Atkins Means for SEC’s Division of Enforcement” (Feb. 5, 2026).

LP Portfolio Financing Facilities: Complexities of Loan‑to‑Value Ratios and Other Lender Protections (Part Two of Two)

LPs looking for alternative options in a liquidity-constrained market are increasingly pledging their interests in private funds to secure financing from traditional banks and private credit lenders. Using LP interests in private funds as collateral creates certain challenges, however, including how to value the interests on an ongoing basis, how to handle periodic distributions from underlying funds and how to obtain consent from underlying GPs to potential transfers to lenders in an event of default. Before LPs can reap the benefits of this relatively nascent form of liquidity, they need to work with lenders to overcome those and other issues when negotiating the financing agreements. This second article in a two-part series delves into certain challenges that LP portfolio financing facilities pose, including dealing with distributions and valuations in the context of the loan-to-value ratio and how to ensure lenders are protected in event of default scenarios. The first article explored the trends driving the growing use of LP portfolio financing facilities; described the types of LPs and lenders pursuing the facilities; and detailed certain key terms and conditions the parties negotiate when putting the facilities in place. See “Trends in Fund Finance Market and Key Terms Reflect Increased Diversification and Industry Adoption” (May 14, 2026).

Survey Examines Current State of PE Funds’ Key Economic and Governance Provisions

The PE industry continues to face headwinds, according to Paul Weiss’ annual Private Equity Fundraising: Key Trends and Market Survey report (Report). Notably, fundraising is down year-over-year and there is a significant ongoing distribution overhang, creating “one of the most LP-favorable environments in years,” according to the Report. LPs are wielding their negotiating leverage to focus on fees, expenses and offsets; fund governance; and GP conduct. To assess how those market concerns are being reflected in new funds, the Report examines selected terms from over 50 recently raised PE funds (Surveyed Funds), each of which sought to raise at least $2.5 billion. Nearly three-quarters of the Surveyed Funds were formed by firms among the top 100 firms measured by PE assets under management. The Report covers fees and expenses; GP capital commitments; offering periods, commitment periods and fund duration; LP protections; and co‑investment programs. This article parses the Report. See our coverage of previous Paul Weiss PE fundraising reports from 2025, 2024 and 2022.

Hybrid Funds Continue to Gain Traction, but Liquidity and Conflict Risks Demand Careful Structuring

Hybrid funds provide investors access to illiquid assets via traditional closed-end drawdown structures, while simultaneously offering flexible subscription and redemption opportunities akin to open-end funds. Seemingly a panacea as the best of both worlds between the two fund structures, the popularity of hybrid funds is impeded by the substantial operational challenges they present for managers and the difficult liquidity issues that can arise. The complications compound when investors take advantage of the redemption provisions to exit a hybrid fund, as that creates a bifurcation as to the non-redeeming investors in a way that introduces myriad potential conflicts of interest. The obvious appeal of hybrid funds, and the multitude of complexities they pose, were discussed at a PLI program that featured Cleary Gottlieb partner Maurice R. Gindi; Daniel J. Blumenthal, GC at Bayview Asset Management; Matthew Jill, GC at Ares Management Corporation; and James Sullivan, associate GC at Viking Global Investors LP. This article synthesizes their insights. See “Emerging Industry Trends Include Rise of Evergreen Structures, Tax Complications and Private Credit Funds” (Jan. 9, 2025).

Custody Rule Remains on SEC’s Radar

In September 2022, the SEC announced that it had been conducting a targeted examination sweep of investment advisers’ compliance with Rule 206(4)‑2 under the Investment Advisers Act of 1940, known as the Custody Rule. At the time, it resolved administrative proceedings against nine advisers. A year later, it announced an additional five resolutions. Nearly three years later, custody remains one of the Division of Examinations’ “core” areas of interest, and, since the exam sweep, the SEC has continued to bring proceedings involving Custody Rule violations. The latest proceeding is against a registered investment adviser that allegedly violated the Custody Rule as to four private funds it advised from 2015 through 2024. This article provides a refresher on key provisions of the Custody Rule and the details of the adviser’s resolution of the enforcement action. See “SEC Settles Five Additional Enforcement Proceedings for Custody Rule and Form ADV Violations” (May 2, 2024); and “SEC Sanctions Investment Adviser Over Shortcomings With Custody Rule Financial Statement Requirements” (Apr. 26, 2022).

Ropes & Gray Adds Secondaries Expert in New York

Peter Rosen has joined Ropes & Gray as a partner in the firm’s New York office. He specializes in assisting sponsors and investors with the full range of secondary transactions. For insights from Ropes & Gray, see “Understanding GP Financing Facilities” (Apr. 30, 2026); and “White Deer Sanctions Settlement Underscores the Importance of Post‑Acquisition Cleanup” (Sep. 4, 2025).

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