In his recent article for Pratt’s Journal of Bankruptcy Law titled “Purdue Pharma Ruling by U.S. Court of Appeals for the Second Circuit: Not the Last Word,” Schulte Roth & Zabel of counsel Michael L. Cook discusses the U.S. Court of Appeals for the Second Circuit’s recent decision regarding the nonconsensual releases of direct claims against third-party non-debtors in a Chapter 11 reorganization plan. 

The U.S. Court of Appeals for the Second Circuit, in In re Purdue Pharma L.P., recently affirmed a bankruptcy court’s confirmation of a reorganization plan with nonconsensual releases of direct claims against third-party non-debtors, the debtor’s controlling owners.

Reversing the forceful opinion of the district court in In re Purdue Pharma L.P., the Second Circuit held that releases of direct claims are permitted under both Bankruptcy Code Sections 105 (a) and 1123(b)(6) and under “this Court’s case law.”

One judge on the three-judge panel, though, “reluctantly” concurred with the majority’s holding only because of “binding” Second Circuit precedent, citing In re Drexel Burnham Lambert Group, Inc. 

Schulte partner Ben Kozinn recently spoke with Robin L. Barton from The Hedge Fund Law Report, discussing the latest risk alert from the SEC’s Division of Examinations that addresses three areas of emphasis in advisers’ exams: testimonials and endorsements; third-party ratings; and Form ADV. Ben noted, “We are seeing a focus in exams on Marketing Rule compliance. This SEC has been aggressive on just about everything with respect to private fund managers, and now with the Marketing Rule, there are just more things they can criticize.”  

With regard to endorsements, he stated that “[p]rivate fund managers have not historically used what you traditionally think of as endorsements or testimonials,” rather using awards as endorsements for their marketing. Ben explained that in order for advisers to do that, they “must have appropriate disclosures and disclaimers as to what the award means, who gave it to you, how you got involved with them, whether you paid anything to be considered for the award and why you won.” He recommends that fund managers work with quality compliance consultants and/or counsel because marketing “is an area now where you need to be very cautious.” 

Read more here. 

Schulte Roth & Zabel partner Kelly Koscuiszka spoke to Carl Ayers of Regulatory Compliance Watch for his article, “Key considerations before dabbling in AI.”

As investment advisers are increasingly experimenting with ChatGPT and other AI, Kelly weighed in on the importance of proactive practices and the critical need for compliance policies and procedures to be nimble. “This is a very dynamic area, and the policies are likely to change very quickly,” says Kelly.

She also cautions clients to be on the lookout for increased cyber risks as threat actors exploit AI. You can bet phishing campaigns “are going to get much more sophisticated,” predicts Kelly. 

Read the article here.

Schulte Roth & Zabel co-managing partner Marc Elovitz recently spoke with Creditflux editor Tom Davidson on the SEC’s decision not to take a position in an ongoing court case about whether U.S. leveraged loans are securities. In the article, “Loan market breathes sigh of relief as SEC declines to comment on Kirschner case,” Marc cautioned that this should be a wake-up call for the loan market, “Industry participants need to consider what the future looks like,” a reprieve for the loan market may only be temporary as the fundamental problem remains unsolved.

“The immediate crisis has been averted, but the underlying legal issue hasn’t gone away. Just because the SEC bowed out here doesn’t mean they won’t address the subject in the future, and there are pretty strongly held views by several regulators.”  

Read the article here. (subscription required)

Marc also contributed to the Refinitiv Loan Connector article, “Market Relieved After SEC Declines to Weigh in on Loan Securities Court Case.” 

Read the article, courtesy of LPC, here.