In brief
A significant new rulemaking proposal1 from the U.S. Securities and Exchange Commission (SEC) would fundamentally alter how private investment funds2 negotiate and communicate with their investors. The proposal (“Proposal“) would prohibit indemnification of managers for many types of mistakes, restrict some common side letter terms, require auditors to report certain events to the SEC and mandate quarterly reporting for private fund investors. Crucially, some of the Proposal’s prohibitions would, for the first time, substantively regulate unregistered and exempt investment advisers, both inside and outside of the United States. The repercussions of the Proposal would extend beyond private fund managers and affect co-investment structures, portfolio companies, institutional investors, and many key service providers to private funds. Auditors, in particular, may come under greater SEC enforcement scrutiny.
The Proposal is not yet final, and the SEC is requesting comments, which will be due no earlier than 11 April 2022. Interested parties are encouraged to reach out to the Baker McKenzie attorneys with whom they typically work to discuss any possible comments, questions or concerns.
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Author
Peter Chan
Peter K.M. Chan is a member of Baker McKenzie’s North American Financial Regulation and Enforcement Practice, which provides our clients with a full range of regulatory advice and enforcement counseling.
Peter brings two decades of experience at the US Securities and Exchange Commission (SEC) to his litigation and counseling work. His tenure at the SEC, as well as a stint as Special Assistant US Attorney in the Northern District of Illinois, have given Peter experience with civil and criminal matters. At the SEC, Peter served as assistant regional director in the Chicago regional office, where he led investigations and litigations of high-profile enforcement cases. In the course of his SEC career, he handled corporate issuer disclosure and reporting violations, financial fraud, auditor independence violations, insider trading, broker-dealer misconduct and failure to supervise cases, hedge fund and investment company fraud, and Dodd-Frank and Sarbanes-Oxley violations. As the head of the Municipal Securities and Public Pensions Unit at the SEC's Chicago office, he oversaw cases involving municipalities and public pensions throughout the Midwest, including disclosure failures by states, cities, and underwriters in municipal bond offerings; pay-to-play and public corruption; and securities fraud victimizing municipalities and public pensions.
Peter also served in national leadership roles within the SEC's Enforcement Division. Peter acted as national leader of the Municipalities Continuing Disclosure Cooperation (MCDC) Initiative. He also served as co-chair of the Priorities and Resources Subcommittee of the Division of Enforcement Advisory Committee and was one of the original architects of the SEC Financial Reporting and Audit Task Force.
Peter's experience in criminal securities fraud cases includes serving as Special Assistant US Attorney in the Northern District of Illinois in a criminal investigation into market abuse by a Chicago broker-dealer, resulting in guilty pleas by several senior executives at the firm.
In 2014, Peter received the SEC's prestigious Paul R. Carey Award for his [e]xceptional personal commitment and effectiveness as a member of the Division of Enforcement.
Author
Karl Egbert
Karl Paulson Egbert advises asset managers and their funds on regulatory, corporate and derivatives matters. Karl is a member of the Firm's North American Financial Institutions Steering Committee. Karl has practiced in New York, London, Hong Kong and Washington, D.C., working on fund formation, listed funds, private equity and capital markets transactions.
Karl has spoken at various industry seminars on a wide range of topics including access to Chinese securities markets (Stock Connect, QFII, RQFII, CIBM), and other regulatory issues for investment managers. He is regularly quoted in publications including the Financial Times, the South China Morning Post, Ignites Asia, Asian Venture Capital Journal and Reuters. He is an adjunct professor of Law at the Georgetown University Law Center.
