On Sept. 18, 2020, the SEC sanctioned two related administrators for contributing and causing violations of sections 206(2) and 206(4) of the Investment Advisers Act and Rule 206(4)-8 thereunder by L-R Managers LLC (“L-R”).[1] Beginning in January 2016, the administrators performed several actions at the request of L-R, including permitting unsupported withdrawals by the adviser and allowing questionable accounting classifications and unsupported valuations that resulted in inaccurate valuations of client portfolios.

While the violations that the SEC cited for the administrators do not directly relate to investment management activities, private fund managers should view this action as a reminder that they are expected to provide administrators and other gatekeepers with sufficient support for all instructions and actions that can affect asset values. Also, this action serves as a reminder that performing effective due diligence and understanding the controls that key service providers have in place is essential.

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

[1] https://www.sec.gov/litigation/admin/2020/ia-5585.pdf

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.

SEC Accredited Investor Definition Updated

On Aug. 26, 2020, the SEC broadened the definitions of “accredited investor” in Regulation D under the Securities Act of 1933.

› Read more

Fund Administrators Sanctioned by SEC

On Sept. 18, 2020, the SEC sanctioned two related administrators for contributing and causing violations of sections 206(2) and 206(4) of the Investment Advisers Act and Rule 206(4)-8 thereunder by L-R Managers LLC.

› Read more

SEC Staff Provides Guidance Regarding Disciplinary History Disclosure Standard in Form CRS

On Oct. 8, 2020, the staff of the SEC’s Division of Investment Management and of the Division of Trading and Markets released additional FAQs relating to Form CRS focused on disciplinary history disclosures required of Form CRS filers (e.g., registered investment advisers with natural person clients) and their personnel.

› Read more

SEC Chairman Highlights Robust Rulemaking, Enforcement and Examination Statistics

At the “SEC Speaks” forum on Oct. 8, 2020, SEC Chairman Jay Clayton provided an overview of the SEC’s 2020 fiscal year goals and accomplishments, including its rule enforcement activities and highlighted the SEC’s rulemaking, examination and enforcement statistics, which show that the SEC has remained highly active in its oversight of market participants even in the midst of the COVID-19 global pandemic.

› Read more

SEC Provides Observations on “Credential Stuffing” Cyberattacks

On Sept. 15, 2020, OCIE issued a cybersecurity Risk Alert warning about an increase in cyberattacks against registered investment advisers and broker-dealers using “credential stuffing.”

› Read more

SEC Resolves Digital Token Offering Case

On October 20, 2020, the SEC and Kik Interactive Inc. resolved a multi-year litigation regarding Kik’s offer and sale of digital tokens called Kin. The SEC sued Kik alleging that the Kin offering should have been registered with the SEC.

› Read more

CFTC Sanctions Trader for Insider Trading by “Misappropriating” Employer’s Trade Data and Analysis

Although insider trading cases typically arise in the equities markets, managers should be reminded that the Commodity Futures Trading Commission has asserted its authority to bring such actions in the commodity interest space as well.

› Read more

CFTC Compliance Program Evaluation Factors Released

On Sept. 10, 2020, the CFTC announced new guidance from its Division of Enforcement outlining factors that will be considered when evaluating a regulatory compliance program in connection with an enforcement matter.

› Read more

“Spoofing” Continues to Draw Heavy Enforcement Attention

Spoofing, a form of manipulative trading conduct in which a trader enters buy or sell orders into the market that they have no genuine intention of fulfilling, remains an area of keen interest for regulators as well as exchange-level enforcement officers.

› Read more

CFTC Finalizes Simplifying Amendments to CPO Quarterly Reporting Form

On Oct. 6, 2020, the CFTC voted to adopt amendments to Form CPO-PQR, the standard quarterly reporting form that is furnished to the CFTC (via submission to the NFA) by registered commodity pool operators.

› Read more

NFA Updates Annual Questionnaire

National Futures Association member commodity pool operators are required to update their “Annual Questionnaire” — an online template that aggregates various information about a member’s business and operated commodity pools — on an annual basis (or upon the occurrence of certain events).

› Read more

NFA Announces Expiration of COVID-19-Related Relief from Fingerprinting Requirements for New APs and Principals

Earlier this year, the CFTC and the NFA implemented temporary relief from the requirement to obtain fingerprints in connection with registering principals and associated persons. On Sept. 29,2020, the NFA announced that this relief would end and provided additional guidance.

› Read more

SEC Sanctions a Registered Broker-Dealer for Text Message Recordkeeping Failures

On Sept. 23, 2020, the SEC released a cease-and-deist order imposing remedial sanctions arising out of the failure of a registered broker-dealer to retain business-related texts with clients, as required by the provisions of Section 17(a) of the Securities Exchange Act and SEC Rule 17a-4(b)(4).

› Read more

European Funds — ESMA Liquidity Stress-Testing Guidelines Take Effect

ESMA Liquidity Stress-Testing Guidelines took effect on 30 Sept. 2020. The guidelines set out detailed requirements applicable to EU managers of alternative investment funds and UCITS.

› Read more

On Sept. 10, 2020, the CFTC announced new guidance[1] from its Division of Enforcement outlining factors that will be considered when evaluating a regulatory compliance program in connection with an enforcement matter. The guidance, which is the first of its kind issued by the Division, is intended to help staff identify whether an examinee’s compliance program was reasonably designed and implemented to:

• Prevent the underlying misconduct at issue in the enforcement matter (for example, does the examinee have “written policies and procedures in effect throughout the period of misconduct reasonably addressed the type of misconduct at issue”);
• Detect any misconduct (for example, were there adequate “internal surveillance and monitoring efforts”); and
• Remediate any misconduct (for example, was timely and appropriate action taken to “effectively address any impact of the misconduct, including to mitigate and cure any financial harm to others and restore integrity to the relevant markets”).

While this high-level guidance is ostensibly intended to aid its staff in conducting an investigation — rather than as a guide to market participants in crafting an effective compliance program — it may serve as a useful reference for CFTC-registered managers when self-evaluating the robustness of their compliance programs. Managers whose compliance programs are benchmarked only against National Futures Association guidance on supervision and internal controls are apt to find that their programs exhibit many of the hallmarks of effectiveness that the CFTC identifies, but should confirm that their programs are broad enough to cover the full breadth of the CFTC’s focus.

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

[1] See CFTC Release No. 8235-20, available here.

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.

There’s no doubt that employment law has been greatly impacted by the current socio-economic, political and legal climate. In navigating these changes, alternative solutions have created not only new challenges, but, arguably, unintended consequences.

In this guide, published by Chambers and Partners, our lawyers dive into Illinois-specific laws and practices, including:

• The impact of COVID-19 on the workplace
• The implications of movements, such as “Black Lives Matter” and “Me Too”
• The impact on immigration and related foreign workers
• The legal and practical constraints of the interview process
• An overview on privacy issues and workplace safety
• Employment disputes, claims and relief

In addition, the guide explores trends and developments in the Illinois workplace, such as:

• Legal issues related to employee mobility
• Restrictive covenants
• Inevitable disclosure
• Non-solicitation