I’m attending a conference sponsored by IA Watch: Coping with Regulatory Change. These are my brief notes.
Luis Mejia, Partner, Perkins Coie, Washington, D.C.; Walter Ricciardi, Partner, Paul, Weiss, Rifkind, Wharton & Garrison, New York; and Bruce Karpati, Global CCO/Director, KKR, New York provided their view, now that they are on the other side.
You either (1) eliminate the conflict or (2) disclose and mitigate. The challenge is identifying all of the conflicts. Assuming you find them all, can you mitigate them all.
The panel was critical of the several private equity enforcement actions. In the KKR case, KKR fixed the problem and refunded some of the fees during the exam. So why was it an enforcement action? Do you have to self-report and cut all the checks before the exam ends.
The SEC has been inconsistent with its interpretation of the “wholesale failure” of the CCO. But in the Blackstone case, the CCO was blamed for inadequate policies and procedures.
In the Delaney case, the panel had a hard time finding how the CCO was engaged in “wholesale failure.”
How do you protect yourself? Look at the steps the CCO took in Robare case. The firm had hired an outside consultant to help them understand the requirements.
There is the October 14, 2015 speech by Andrew Donohue for the role of compliance: Remarks at NRS 30th Annual Fall Investment Adviser and Broker-Dealer Compliance Conference.
Commissioner Gallagher gave a speech that its the firm that’s responsible for compliance. The CCOs should not be subject to strict liability for a failure.