The SEC brought charges against a fund manager for 13D violations, in yet another reminder that it will pursue enforcement actions against filers for Schedule 13D violations even without a pattern of repeat violations. On Sept. 17, 2020, the SEC announced the settlement of charges brought against an investment manager of certain private funds for failure to timely amend a statement of beneficial ownership report on Schedule 13D. In this article, partner Ele Klein and special counsel Adriana Schwartz and Clara Zylberg outline the implications of the charges and other key takeaways for investment managers.

On Oct. 7, 2020, the SEC, by a 3-2 vote, proposed a conditional exemption from the broker-dealer registration requirements of Section 15(a) of the Securities Exchange Act of 1934, as amended, for natural persons who assist issuers with raising capital in private markets from “accredited investors” (“Proposal”). The Proposal provides long-sought guidance regarding payment of transaction-based compensation to unregistered persons, commonly referred to as “finders,” who engage in limited securities-related activities to raise funds on behalf of issuers. In this article, partners Marc Elovitz, Craig Warkol and former Schulte lawyers Brian Daly and Jacqueline Srour discuss the impact of the proposal on broker-dealers.

An exponential increase in the use of alternative data by fund managers has become a hot topic for the Securities and Exchange Commission. The SEC’s Office of Compliance Inspections and Examinations (OCIE) has sharpened its focus on alternative data, and we anticipate a risk alert by the OCIE staff is forthcoming. In this article for Bloomberg Law, SRZ partner Craig Warkol and special counsel Kelly Koscuiszka discuss the SEC’s increased focus on alternative data and MNPI risks, recent enforcement actions under Section 204A as a blueprint for potential enforcement actions regarding alternative data, and the importance of designing and implementing an effective compliance program regarding alternative data.

Schulte partners Harry Davis and Robert Ward, of counsel Robert Abrahams and Robert Nash and staff attorney Barbara Reid authored several chapters in the fifth edition of Commercial Litigation in New York State Courts, published by Thomson Reuters. The book’s chapters written by Schulte lawyers include “Provisional Remedies,” “Commercial Leasing” and “Document Discovery.”

Commercial Litigation in New York State Courts features the work of 182 expert authors, including some of the best commercial litigators in New York. Enhanced with new and expanded chapters, this seminal work has been completely updated, expanded, and revised to address pertinent subjects. The authors discuss the interplay between rules of procedures and substantive law, outline strategies for representation of plaintiff and defendant, and consider ramifications of various actions. To order a copy of the book, please click here.

Recognizing that companies need quick access to capital due to the unprecedented disruption caused by COVID-19 and to mitigate against the NYSE stockholder approval rules presenting a hurdle to raising capital, the NYSE and the SEC approved the temporary waiver of certain NYSE stockholder approval rules set forth in Section 312.03 of the NYSE Listed Company Manual. The NYSE Waiver was last set to expire on Sept. 30, 2020, but, effective Sept. 28, 2020, was extended through Dec. 31, 2020. In this article, partner Ele Klein and special counsel Adriana Schwartz and Clara Zylberg discuss the extensions of the “related party” and “20%” stockholder approval rule waivers and provide insight on what the extensions mean.

During a roundtable hosted by the SEC on Oct. 26, 2020, Chairman Jay Clayton discussed how Form CRS and Regulation Best Interest (“Reg BI”) together seek to enhance the transparency and quality of relationships between investment advisers, broker-dealers and retail investors and shared the staff’s observations in the four months since the compliance date for each.[1]

The Chairman also defended his decision to maintain the June 30 compliance date, saying he believed “the significant benefits of Reg BI and Form CRS would be crucially important to Main Street investors as they sought to address the economic impacts of the COVID-19 pandemic and resulting market volatility.”

Form CRS

As a reminder, Form CRS requires SEC-registered investment advisers to provide a brief relationship summary to their clients who are natural persons (defined for this purpose as “retail investors” but not including investors in pooled investment vehicles).[2] The summary must contain plain English disclosures on certain topics (e.g., fees, costs, conflicts of interest and disciplinary history) under standardized headings and in a prescribed order. It is designed to help retail investors make informed choices and improve the dialogue between retail investors and investment advisers.[3]

During the roundtable, the staff gave practical guidance for the disclosures, noting that, on average, the Forms CRS they reviewed were written at an 11th grade reading level and encouraging firms to write their Forms CRS at an eighth grade reading level to maximize readability.[4] The Chairman also observed that some filings failed to include required information regarding disciplinary history and directed managers to several recent FAQs[5] the staff has published on the topic.

Regulation Best Interest

Also, as a reminder, Reg BI establishes an enhanced standard of conduct that requires broker-dealers to act in the best interest of their retail customers and prohibits broker-dealers from placing their own interests ahead of their retail customers’ interests.[6] Notably, this heightened standard applies when a broker-dealer recommends either a securities transaction or an investment strategy involving securities, including an account recommendation such as a retirement fund “rollover,” and cannot be satisfied through disclosure alone. According to the Chairman, “Reg BI codifies the fundamental principle that investment professionals should not put their interests ahead of the interests of their clients and customers.”

This article appeared in the November 2020 edition of SRZ’s Private Funds Regulatory Update. To read the full Update, click here.

 [1] See Statement at the SEC’s Staff Roundtable on Regulation Best Interest and Form CRS (“Chairman’s Statement”); see also our April 10, 2020, Alert regarding Form CRS.

[2] See our August 2019 Private Funds Regulatory Update regarding Form CRS and Reg BI.

[3] See Chairman’s Statement.

[4] See Roundtable on Regulation Best Interest and Form CRS.

[5] Securities and Exchange Commission, Division of Investment Management: Frequently Asked Questions on Form CRS. 

[6] See our August 2019 Private Funds Regulatory Update regarding Form CRS and Reg BI.

This communication is issued by Schulte Roth & Zabel LLP and Schulte Roth & Zabel International LLP for informational purposes only and does not constitute legal advice or establish an attorney-client relationship. In some jurisdictions, this publication may be considered attorney advertising. ©2020 Schulte Roth & Zabel LLP and Schulte Roth & Zabel International LLP. All rights reserved. SCHULTE ROTH & ZABEL is the registered trademark of Schulte Roth & Zabel LLP.

A recent amendment extends the California Consumer Privacy Act ( “CCPA”) partial exemptions[1] for business-to-business (“B2B”)-related and certain human resources (“HR”) information from Jan. 1, 2021, to Jan. 1, 2022. The outcome of a ballot initiative on election day could extend the exemptions one additional year, i.e., until Jan. 1, 2023.[2] Either outcome should come as welcome news to fund managers because it preserves the status quo for portions of the CCPA for which implementation would otherwise be difficult.[3]

B2B Contacts

Until Jan. 1, 2022, the CCPA will remain largely inapplicable to information collected in a purely B2B context, such as the name and email address of a California resident acting on behalf of an institutional investor or a vendor.[4] The amendment provides more time for the California legislature to potentially address the burdensome challenges presented by applying the CCPA’s requirements — in particular the requirements of making disclosure to consumers at the “point of collection” and responding to individual consumer requests[5] — to a B2B relationship.

HR-Related Information

The CCPA contains a partial exemption from its extensive disclosure requirements for information about employees, job applicants and contractors and permits employers to use more limited privacy disclosures with respect to these groups. Employers may continue to provide abbreviated disclosures until Jan. 1, 2022, after which the CCPA’s full requirements will apply to this HR-related information absent further legislative action.

The amendment, however, does not lessen the current CCPA requirements. Private fund managers are reminded to continue to provide abbreviated notice requirements to California employees, job applicants and independent contractors as required under the CCPA.

This article appeared in the November 2020 edition of SRZ’s Private Funds Regulatory Update. To read the full Update, click here.

[1] The exemptions do not extend to the CCPA’s private right of action for consumers whose sensitive personal information has been subject to unauthorized access or disclosure as a result of the covered business’ failure to maintain “reasonable” security procedures.

[2] On Sept. 29, 2020, California Governor Gavin Newsom signed AB-1281 into law. AB-1281 will only take effect if California voters do not approve the California Privacy Rights Act (CPRA) ballot initiative on Nov. 3, 2020. If voters approve the initiative, the CPRA would extend the exemptions for another year, until Jan. 1, 2023.

[3] The CCPA applies to private fund managers that collect certain personal information from natural persons who reside in California. Our Dec. 6, 2019 Alert discusses the CCPA’s requirements with respect to different types of information, including HR- and B2B-related data.

[4] The exemption is not complete as it applies to B2B data only if the personal information is collected in the context of conducting due diligence or providing or receiving a product or service.

[5] Where no exemption applies, the CCPA requires businesses to respond to requests from individual consumers for information such as the categories of personal information collected and how that information is used, as well requests to delete personal information (subject to regulatory limitations).

This communication is issued by Schulte Roth & Zabel LLP and Schulte Roth & Zabel International LLP for informational purposes only and does not constitute legal advice or establish an attorney-client relationship. In some jurisdictions, this publication may be considered attorney advertising. ©2020 Schulte Roth & Zabel LLP and Schulte Roth & Zabel International LLP. All rights reserved. SCHULTE ROTH & ZABEL is the registered trademark of Schulte Roth & Zabel LLP.