Schulte Roth & Zabel co-managing partner Marc Elovitz appeared on CNBC’s Squawk Box in the segment, “SEC Seeks Rule Change that Could Cause Fund Managers to Take Less Risk.” He spoke with reporter Leslie Picker regarding the proposed SEC rule change lowering the bar for indemnification of fund managers to “ordinary negligence” from “gross negligence.” The change would make it easier for limited partners to bring claims against general partners.  

Marc commented on how the ability of fund managers to take risks and be protected in their day-to-day conduct is fundamental to having an investment strategy that has potentially higher rewards.  

“If you’re going to have funds that offer potentially higher returns, there are going to be risks associated with that. And investment managers are going to have a hard time protecting themselves from being on the hook for those risks.”   

Watch the interview here.

Schulte Roth & Zabel co-managing partner Marc Elovitz was recently quoted in the CNBC Delivering Alpha Newsletter regarding the proposed SEC rule change lowering the bar for indemnification of fund managers to “ordinary negligence” from “gross negligence.” The change would make it easier for limited partners to bring claims against general partners. 

Marc noted that the rule change “would monumentally change the relationship between fund managers and investors.” Further, he stated that “If you’re going to have funds that offer potentially higher returns, there are going to be risks associated with that. And investment managers are going to have a hard time protecting themselves from being on the hook for those risks.”   

If the rule were to pass in its current form, critics say the reforms would most certainly affect the risk tolerance among private funds, affecting fund managers ability to take risks with their investment strategy. 

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In his recent article for The Bankruptcy Strategist titled “Second Circuit Affirms Slashing of Unreasonable Fees In Dismissed Involuntary Bankruptcy Case,” Schulte Roth & Zabel of counsel Michael L. Cook discusses unreasonable fees in a dismissed involuntary bankruptcy case, In re Navient Solutions, LLC. 

The U.S. Court of Appeals for the Second Circuit quietly affirmed a bankruptcy court’s dismissal of an involuntary petition because the petitioners’ “claims were the subject of bona fide disputes within the meaning of” Bankruptcy Code (Code) §303(b)(1) (petitioner may not hold claim that is “the subject of a bona fide dispute as to liability or amount”). In re Navient Solutions, LLC, 2023 WL 3487051 (2d Cir. May 17, 2023). More important, the court affirmed “the bankruptcy court’s [reduced] award of a sum of $44,000 in attorneys’ fees and costs” under Code §303(i)(1)(B) to the debtor, “to be paid by [the lawyer for the petitioning creditors]” – a 90 percent reduction. The court did not dwell on the facts of this litigation, but they have major practical significance. As shown in this article, an involuntary bankruptcy petition is a limited, risky remedy for both creditors’ counsel and debtor’s counsel. The substantial fee problems encountered by counsel for the petitioners and the putative debtor in this case provide a cautionary tale.