Tag: Shearman & Sterling

Private Fund Manager Registration Status

Shearman & Sterling put together a great client publication on private fund manager registration requirements being considered by Congress: Private Fund Manager Registration as U.S. Financial Reform Legislation Approaches the Finish Line.

Among the many provisions to be reconciled in the 1,600+ pages of each bill are those that would require private fund managers to register as investment advisers with the U.S. Securities and Exchange Commission. The registration provisions would strike the existing registration exemption on which many fund managers now rely, that being the so-called “private adviser” or “fourteen or fewer clients” exemption. The result is that many fund managers that are currently exempt from SEC investment adviser registration will be forced to register in due course. With that background, this alert highlights differences between the Senate and House treatment of these registration requirements.

Update on the European Directive to Regulate Alternative Investment Fund Managers

eu

The draft Directive on Alternative Investment Fund Managers pdf-2 was published on April 30, 2009. The Proposed Directive has been subject to lots of criticism. Many of the provisions in the Proposed Directive misunderstood the characteristics of different types of alternative investment funds.

It now seems the Proposed Directive will be implemented in one form or another. (The EU’s focus on financial market reform has not been distracted by health care reform like happened here in the US.)

The first problem with the proposed directive is that it has broad definition of “alternative investment fund” so it can sweep up all hedge funds. It seems the the Presidency of the European Council has noticed that the existing definition would capture funds that clearly should not be the target of the Proposed Directive. [see AIFM Issues Note from the EU Presidency]

Unless non-EU managers comply with the rules within three years of the Directive coming into force (probably around 2015) they will be barred from offering their products in the EU. Britain, another center of hedge funds and private equity is campaigning to water down the directive. France, Spain and Germany seem to be very pro-directive and in favor of stiffer regulations.

Britain’s financial services minister, Paul Myners, told a conference: “Smell the coffee! There is going to be a directive.”

For more detail read a client alert from Shearman & Sterling: Update on the European Directive to Regulate Alternative Investment Fund Managers.

References:

Recent Trends and Patterns in FCPA Enforcement

shearmanPhilip Urofsky and Danforth Newcomb of Shearman & Sterling LLP have released their latest update on the Recent Trends and Patterns in FCPA Enforcement (.pdf).

The Foreign Corrupt Practices Act has been front page news quite a bit lately with the enormous settlement of Siemens. The first to break through $1 billion. The Hallibuton/KBR settlement followed up with enormous numbers, just not quite as big as Siemens. There has been rumors floating around that there are several other cases out there with substantial fines as a result of FCPA prosecutions. Of course these numbers have been swallowed up by Madoff, Stanford and al of the gyrations in the market.

What do Mr. Urofsky and Mr. Newcomb have to say?:

The past year has seen the announcement of a number of FCPA enforcement actions with unprecedented fines and penalties. However, while such major cases as Siemens and Halliburton/KBR have obviously dominated the news, it is hard to say whether they represent a trend toward large-scale high-penalty FCPA prosecutions although there are likely several cases with similarly substantial fines to come. More important than the size of the penalty are the multi-year trends of increasing numbers of enforcement investigations and enforcement actions against both corporations and individuals, which have been accompanied by expansive assertions of jurisdiction by the U.S. enforcement authorities and a rapidly growing body of interpretative guidance, both from the courts and the enforcement agencies themselves. The increased risk of investigation or enforcement action has resulted in increased sensitivity to FCPA concerns in M&A transactions, as well as in common commercial transactions and business relationships. Further, as demonstrated by the Siemens matter, non-U.S. enforcement agencies have begun to initiate investigations of their own, suggesting that, in the future, there is a greater likelihood that multinational corporations will have to respond to, defend, and possibly settle investigations and enforcement actions in multiple jurisdictions.

FCPA Trends and Patterns

Danforth Newcomb and Philip Urofsky of Shearman and Sterling have updated their  FCPA Digest of Cases and Review Releases and Recent Trends and Patterns in FCPA Enforcement (.pdf).

In addition to a general increase in FCPA enforcement activity in recent years, four distinctive new trends can be seen. First, both the frequency and severity of enforcement have increased in recent years. While there are fluctuations over short periods, over the past five years there is clearly the trend toward more aggressive investigations and enforcement proceedings by the DOJ and the SEC, including a steady increase in proceedings brought against individuals. These proceedings are also resulting in more severe punishments in the form of fines for corporations and jail time for individuals.

The second trend is the use of more creative methods in resolution of criminal cases. In recent years, the DOJ has increasingly used non-prosecution (or deferred prosecution) agreements in FCPA matters apparently to provide a reward to defendants who voluntarily disclose and cooperate in the DOJ’s investigation and, of course, to provide an incentive to other companies to do likewise.

Third, the DOJ and the SEC have increasingly included a requirement that a company retain an independent compliance monitor as part of any settlement – whether it be a plea, deferred prosecution, or civil settlement. In the past year, however, the DOJ has issued guidance on the circumstances in which a monitor is appropriate and the manner in which one should be selected. In addition, in several recent cases, the DOJ has chosen not to impose a monitor apparently in recognition of the company’s own credible remedial steps.

The final development is a spike in enforcement actions resulting from self-reporting of FCPA problems discovered as part of merger or acquisition activity. This may be somewhat of a self-fulfilling prophecy as more parties are worried about successor liability arising from prior corrupt conduct by the acquired company.

Time may show each of these trends to be mere anomalies in a larger anti-corruption movement, but at this point, one thing is clear: this is a period of rapid change in anticorruption enforcement activity.