Doug Cornelius

New Risk Alert for Private Funds Probably Portends Coming Exams

By Doug Cornelius

June 24, 2020

The SEC’s Office of Compliance Inspections and Examinations issued a new Risk Alert: Observations from Examinations of Investment Advisers Managing Private Funds. OCIE highlights three areas of noncompliance in the Risk Alert: conflicts of interest, fees and expenses, and misuse of material nonpublic information. OCIE lays out some of the conflicts that are particular to private funds. Allocation of opportunities takes the first spot. A bad thing is allocating limited opportunities to higher fee-paying…

Compliance Building

SEC and LIBOR Transition

By Doug Cornelius

June 21, 2020

Early this year, the SEC’s Office of Compliance Inspections and Examinations announced its 2020 examination priorities. One item was “Risk, Technology, and Industry Trends.” One risk mentioned was LIBOR transition. [A]s our registrants and other market participants transition away from LIBOR as a widely used reference rate in a number of financial instruments to an alternative reference rate, OCIE will be reviewing firms’ preparations and disclosures regarding their readiness, particularly in relation to the transition’s…

Compliance Building

New SEC Commissioner to be Nominated

By Doug Cornelius

June 18, 2020

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Commissioner Robert J. Jackson Jr. stepped down from the SEC when his term expired in February, 2020. President Trump had identified his replacement to serve on the Securities and Exchange Commission: Caroline Crenshaw. Ms. Crenshaw currently serves in the Army JAG Corps and as senior counsel to the SEC. When she first joined the SEC in 2013, she served in the Office of Compliance and Examinations in the Division of Investment Management. Is she…

Compliance Building

A Remarkable Decision from the Supreme Court

By Doug Cornelius

June 16, 2020

I’m sure many people are surprised at the decision from the Supreme Court that federal employment discrimination law protects gay and transgender employees. Title VII of the Civil Rights Act of 1964 prohibits employment discrimination “because of sex.” Even if Congress did not have discrimination based on sexual orientation or transgender status in mind when it enacted the Civil Rights Act over a half century ago, the Supreme Court ruled that Title VII’s ban on…

Compliance Building

Importance of Timely Audits for Private Funds under the Custody Rule

By Doug Cornelius

May 27, 2020

The vast majority of private funds use the audited financial statements alternative for compliance with the Custody Rule. Fund managers have custody of the fund assets. Fund investors typically demand audited financial statements from their fund managers. So the audited financial statement work well with the Custody Rule and provides some third-party verification that the manager is not misusing or misappropriating client funds or assets. The audited financial statements alternative under the Custody Rule…

Compliance Building

Fund Board Representation and Public Stock

By Doug Cornelius

May 26, 2020

Part of a private equity fund’s investment strategy is getting a seat at the table for a company they own. When that company’s shares also publicly traded, there are heightened compliance concerns. The fund’s management representative is likely to end up with material non-public information. The compliance challenge is to prove that the information does not make it to the fund’s trading desks. Ares Management just got an SEC fine for failing to stop the …

Compliance Building

The One with the Inflated Loan Values

By Doug Cornelius

May 20, 2020

The Securities Exchange Commission followed up on whistleblowers’ complaints against TCA Fund Management for inflating the value of the assets in its Global Credit Master Fund. In January, investor redemption requests exceeded the liquidity of the fund and it eased operations. The SEC complaint against TCA Global alleges that TCA was booking fees before they were received. The SEC claims that TCA was booking loan fees as revenue at the non-binding term sheet stage, instead…

Compliance Building

SEC Going After COVID-19 Fraud

By Doug Cornelius

May 18, 2020

There is no greater villain right now that fraudsters trying to profit from the COVID-19 pandemic. The Securities and Exchange Commission is more than willing to go after these bad guys. Trading Suspension According to speech last week by Steven Peiken, the SEC’s Co-Chief of Enforcement, the SEC has suspended trading in the securities of more than 30 issuers as a result of questions about the adequacy and accuracy of coronavirus-related information since early February.…

Compliance Building

Private Fund Takes a Broadside Hit for Misleading Marketing

By Doug Cornelius

May 17, 2020

When using a track record in marketing materials, compliance officers will focus on the numbers and how they are used to portray prior results. The Securities and Exchange Commission will also scrutinize these results when they inevitably stop by to exam registered fund managers. Keeping the track record straight is even more difficult for a new firm. Inevitably the principals will want to market their successful investment activity at the legacy firm. Old Ironsides Energy…

Compliance Building

Compliance Bricks and Mortar for May 15

By Doug Cornelius

May 15, 2020

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I hope you and your family are staying healthy during this pandemic. We are in a time of great distress. Our health and our economy are at risk. Our country is dividing itself over the correct response. It’s been weeks since I’ve published a blog post. I’m trying to adapt to constantly working at home. The house is full of distractions. But it’s also full of family. My regular work routine is gone and I…

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New Risk Alert for Private Funds Probably Portends Coming Exams

SEC and LIBOR Transition

New SEC Commissioner to be Nominated

A Remarkable Decision from the Supreme Court

Importance of Timely Audits for Private Funds under the Custody Rule

Fund Board Representation and Public Stock

The One with the Inflated Loan Values

SEC Going After COVID-19 Fraud

Private Fund Takes a Broadside Hit for Misleading Marketing

Compliance Bricks and Mortar for May 15

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