On February 15, 2024, the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) released a notice of proposed rulemaking (the “Proposed Rule”)[1] that would impose anti-money laundering/countering the financing of terrorism (“AML/CFT”) compliance obligations on SEC-registered investment advisers (“RIAs”) and exempt reporting advisers (“ERAs”) pursuant to the Bank Secrecy Act (the “BSA”), taking steps to close a perceived gap in the AML/CFT defenses of the U.S. financial system. FinCEN estimates more than 15,000 RIAs and almost 6,000 ERAs may be covered by the Proposed Rule, including many advisers that are located outside the United States but have registered (or file reports) with the SEC because they have U.S. clients. Continue Reading FinCEN Tries Again . . . to Impose AML Requirements on Investment Advisers

On January 10, 2024, the U.S. Attorney’s Office for the Southern District of New York (“SDNY”) announced the creation of the SDNY Whistleblower Pilot Program (the “Pilot Program”).[1]  Under the Pilot Program, individuals who self-disclose certain criminal misconduct that involves business organizations to SDNY and cooperate fully may be eligible for a Non-Prosecution Agreement (“NPA”).[2] Continue Reading SDNY Announces Whistleblower Pilot Program For Individuals Who Self-Disclose Wrongdoing Involving Business Organizations

On November 14, the Securities and Exchange Commission announced its enforcement results for the 2023 fiscal year,[1] with case numbers up from fiscal year 2022 and monetary sanctions at the second highest level in the agency’s history, though down significantly from last year’s record highs.  In a press release announcing the results, Enforcement Director Gurbir Grewal noted that the past year’s cases demonstrate how the agency “work[s] with a sense of urgency, using all the tools in our toolkit.”  This post evaluates how the SEC used its enforcement tools in the past year and surveys the enforcement highlights in key substantive areas.Continue Reading SEC Announces FY 2023 Enforcement Results with Second-Highest Penalties on Record

On October 13, the Securities and Exchange Commission (the “SEC”) adopted new rule 10c-1a (the “Rule”), which establishes broad reporting requirements of the terms of securities loans to the Financial Industry Regulatory Authority (“FINRA”) for public dissemination. Aimed at increasing transparency in the securities lending market, the Rule will significantly increase compliance obligations in the securities lending industry, and many market participants will likely require extensive operational upgrades to prepare for compliance. Certain details of reporting obligations will be the subject of FINRA rulemaking, and participants should be prepared to review and provide comment on what is proposed.Continue Reading SEC Finalizes Rule Requiring Securities Loan Reporting

On October 13, 2023, the U.S. Securities and Exchange Commission (“SEC”) adopted (i) a new Rule 13f-2 under the Securities Exchange Act of 1934 (the “Exchange Act”) which will require a wide range of firms to file monthly reports with the SEC for large short positions in equity securities on a new Form SHO, as well as (ii) an amendment to the National Market System plan governing the Consolidated Audit Trail (the “CAT NMS Plan”) which adds an additional reporting requirement for CAT-reporting firms relying on the bona fide market maker exception to Reg SHO’s locate requirement.  The Final Rules, described in greater depth below, will require a significant compliance effort from firms and could potentially risk the exposure of certain valuable proprietary data. Continue Reading SEC Adopts New Short Position Reporting Requirements for Market Participants

The U.S. Securities and Exchange Commission (“SEC”) Division of Examinations (the “Division”) released its 2024 examination priorities on October 16, 2023 (the “2024 Priorities”), launching a new release schedule to align with the fiscal year. As in the 2023 examination priorities (the “2023 Priorities”), private fund advisers received special focus, with broad topic areas spanning both the existing Staff sweeps on custody, marketing and artificial intelligence, as well as renewed scrutiny of valuations and investment processes.  Despite its release causing much fanfare, there was surprisingly little overlap between the 2024 Priorities and the newly adopted Private Fund Adviser Rules; the focus on fees and expense allocation carried over from the Private Fund Adviser Rules, and the Division picks up a theme from its adopting release by taking a shot at limited partnership advisory committees (“LPACs”) and compliance with private fund governance procedures. Continue Reading SEC Staff Play the Hits: 2024 Exam Priorities Focus on Private Funds, Marketing and Crypto

On October 8, 2023, California’s Governor Gavin Newsom signed into law Senate Bill 54 (the “VC Diversity Law”) requiring “venture capital companies” with business ties to California to file annual reports detailing (1) specified demographic data for the founding teams of all portfolio companies invested in during the prior year and (2) the aggregate amounts of investments made by the venture capital company during the prior year and investments in specified categories of portfolio companies.  Demographic data must be obtained through voluntary surveys sent to each founding team member of a portfolio company that receives funding from the venture capital company.  The data, in anonymized form, will be publicly available – and searchable and downloadable – on the California Civil Rights Department’s website.  The VC Diversity Law is stunning both in its scope and its plain objective to impose State-level requirements that go beyond Federal requirements.  And this at a time when the Securities and Exchange Commission has exponentially increased those Federal requirements.Continue Reading California Adds To Private Fund Adviser Woes; Adopts New Diversity Reporting for Venture Capital Funds

On September 25, 2023, the Securities and Exchange Commission announced settled cease-and-desist charges against GTT Communications, Inc. (“GTT”), a formerly publicly-traded multinational telecommunications and internet service provider company.  The SEC charged GTT with failing to disclose material information regarding unsupported accounting adjustments, which caused the company’s statements to be misleading with respect to its cost of revenue.  Continue Reading SEC No-Penalty Settlement Signals Heightened Focus on Self-Reporting and Cooperation

At the September 21, 2023 Conference of the Global Investigations Review, Principal Associate Deputy Attorney General Marshall Miller announced actions by the Department of Justice (“DOJ”) to further incentivize companies engaged in M&A to prioritize compliance.  Miller affirmed that “acquiring companies should be rewarded—rather than penalized—when they engage in careful pre-acquisition diligence and post-acquisition integration to detect and remediate misconduct at the acquired company’s business.”[1] He noted that in practice, “… [Main Justice’s] Criminal Division has declined to take enforcement action against companies that have promptly and voluntarily self-disclosed misconduct uncovered in the mergers and acquisitions context and then remediated and cooperated with the Justice Department in prosecuting culpable individuals,” and that the DOJ “will be looking to apply that same approach Department-wide.”[2]  Continue Reading DOJ Announces Additional Guidance on Voluntary Self-Disclosure in M&A Context