with readers working within the Oil & Gas and Retail & Leisure industries
SEC’s Fiscal Year Comes and Goes, Enters New Year in a Shutdown
Summary: September 30 has long been circled on the calendar for SEC enforcement staff and practitioners as the end of the SEC’s fiscal year, with the customary push to file as many actions as possible in the run-up to the deadline. The ensuing statistics — whether in the form of actions filed or settled, or dollars of disgorgement and penalties obtained — have traditionally been viewed as a bellwether for the strength and ambition of the SEC’s enforcement program.
Takeaway: The weeks leading up to this September 30 were devoid of the usual drumbeat of press releases of enforcement actions, consistent with the more measured approach to enforcement we have seen from Chairman Atkins thus far. The implicit message: enforcement actions will be brought when appropriate, and not against an artificial deadline.
Best Practice Tip: Firms and counsel should not mistake the Commission’s restraint for a more permissive attitude towards enforcement. While this fiscal year end coincided with a government shutdown that will suspend almost all enforcement and exam activity, with new leadership of the Enforcement Division installed and engaged with Staff, firms and counsel should expect enforcement staff to move appropriate investigations forward with renewed confidence and internal support when the government reopens.
Simpson Thacher Obtains No-Action Relief from the Division of Investment Management
Summary: The SEC’s Division of Investment Management granted Simpson Thacher’s request for no-actionrelief confirming that state-chartered trust companies can serve as custodians for handling crypto assets for registered funds and for other types of institutional and individual investors whose assets are professionally managed by SEC-regulated firms.
Takeaway: The letter is especially noteworthy for the flexibility it affords to registered funds, which historically have not invested directly in crypto assets. The letter also marks the SEC Staff’s second crypto-related action within a matter of days and reinforces the SEC’s goal of providing clarity to the crypto asset industry.
Best Practice Tip: No action needed yet, but if you are a registered fund or interested in engaging a state-chartered trust company for the custody of crypto assets, please refer to the required set of conditions set out in the Commission’s no-action letter to Simpson Thacher.
Guardrails on the Horizon for Retail Access to Private Markets
Summary: Retail access to private markets remains a key priority of the current Administration and on September 25, Chairman Atkins previewed that the SEC and Department of Labor would work “hand in glove” to ensure appropriate protections for retail investors in alts. Specifically, he said that “private markets aren’t necessarily private,” and the administration must adopt policies reflective of the “issues of transparency and fees” characteristic of private equity and private credit.
* Atkins’s statements came on the heels of the SEC Investor Advisory Committee’s September 18 report that called for safeguards around retail access to private fund strategies. Notable proposals include additional and simplified disclosures to better enable retail investors’ understanding, and a recommendation that the SEC work with FINRA and state regulators to monitor broker-dealers and advisers for compliance with Reg BI and the Advisers Act.
Takeaway: The SEC is signaling that increased retail access will be balanced with investor protection focused on liquidity, fees, and allocation of opportunities.
Best Practice Tip: While we wait to see the SEC’s and DOL’s proposals, firms with existing retail alts products may want to start assessing if enhancements to compliance programs are appropriate to accommodate regulatory priorities, and firms that are considering launching first-time products in this space should monitor developments, which may evolve quickly.
James Moloney Named Director of the Division of Corporation Finance
Summary: James Moloney was named Director of Corp Fin. Mr. Moloney, a long-time partner at a large law firm, said he was “excited and grateful for this opportunity to work with Chairman Atkins to implement a clear regulatory framework for companies to disclose valuable information to investors.”
Takeaway: Mr. Moloney is the latest in a string of private sector practitioners taking on leadership positions at the Atkins SEC in market-facing Divisions. Chairman Atkins’ appointments reflect a pivot away from the previous administration’s reliance on academics and incumbent staff members to fill key Division Director roles.
Best Practice Tip: The influx of expertise from private practice trenches may portend rulemaking and guidance that align more closely with the practical realities that regulated entities face.
The Return of Simultaneous Settlement and Waivers
Summary: On September 26, Chairman Atkins announced that the SEC would again allow a settling entity to simultaneously present a settlement offer and requests for waivers of any collateral consequences triggered by that offer. This practice had been eliminated by the prior SEC. Chairman Atkins made clear that the change does not obligate the Commission to accept any settlement offer, and, in the event that the Commission accepts a settlement offer, but declines to approve the waiver request, a settling entity will have the opportunity to move forward or withdraw its offer of settlement.
Takeaway: Collateral consequences, such as loss of WKSI status, or a Reg D “bad actor” or 1940 Act disqualification are sometimes more significant to a respondent than the enforcement action itself. Past SEC practice injected substantial uncertainty into a respondent’s settlement calculus. Firms looking to resolve an enforcement action should welcome this procedural change that acknowledges the practical realities of settlement decisions.
Best Practice Tip: Regulated entities that are involved in an SEC investigation should undertake a comprehensive analysis of collateral consequences early on in the process and now have the latitude to involve all key constituents, including the Divisions of Investment Management and Corporation Finance, in coordinated discussions about the interplay between waivers and resolution of investigations.
More New Insider Trading Law Out of The Second Circuit:In Re: Archegos 20A Litigation
Summary: On September 16, the Second Circuit affirmed the dismissal of insider trading claims against several large banks in the case In re: Archegos 20A Litigation. The Second Circuit found the banks did not owe a duty to Archegos — a family office with prime brokerage relationships with the banks — in connection with the liquidation of Archegos’s collateral.
Takeaway: The Second Circuit reaffirmed that insider trading requires the breach of a duty and that, in appropriate circumstances, market participants may trade on information that is not possessed by the entire market without violating the federal securities laws.
Best Practice Tip: As with theChastaincase covered in last month’s SEC Watch, the Archegos decision should not impact existing compliance policies surrounding insider trading. However, the Court’s decision provides a helpful defense and puts up a barrier against claims that unilateral grants of information absent an agreement to maintain confidentiality creates a fiduciary duty that would support liability for insider trading.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Read more on Mondaq Business Briefing
