Archives: Securities & Regulatory Matters

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SEC Proposes New Rule Effecting Registered Investment Advisors

On June 28, 2016, the SEC proposed a new rule applicable to private equity funds that are Registered Investment Advisors. The proposed rule would require these private equity funds to adopt and implement written business continuity and transition plans. The full text of the rule proposal is available at

The purpose of the rule is to ensure that private equity funds are addressing operational and other risks that could result from a significant disruption in their operations or … Read More

Unregistered Broker-Dealers and Private Equity Firms

On June 1, 2016, the Securities and Exchange Commission (the “SEC”) announced a settlement with Blackstreet Capital Management, LLC (“BCM”), a Maryland-based private equity firm, and its principal, Murry Gunty, that could negatively impact the ability of private equity funds to charge transaction fees in the future.[1]  Private equity funds have long charged fees at the closing of portfolio company transactions for their work in facilitating those transactions.  These fees have become an important aspect of private equity fund … Read More

SEC Audits of PE Firms: 3 Must Dos

As we have noted in earlier posts, the SEC has had increased authority over the private equity industry since Dodd-Frank was passed in 2010. Several years ago, an SEC official remarked that SEC exams “identified what we believe are violations of law or material weaknesses in controls over 50% of the time” (see below for link to quote). Not surprisingly, the Office of Compliance Inspections and Examinations of the SEC identified the examination of private fund advisors, with a focus … Read More

House of Representatives Attempting to Ease Regulation of Private Equity Funds

The Wall Street Journal recently reported that the House of Representatives is preparing legislation that would exempt private equity fund managers from rules that some say are burdensome.  Representatives Robert Hurt and Juan Vargas are authoring the bill, which would update current law to ease this burden.

The current law requires private equity fund managers with more than $150 million in assets under management to register and file reports with the Securities Exchange Commission.  The proposed bill, which has not … Read More

Side Letter Agreements and Private Equity Funds: Limitations on Undisclosed Preferences

Side letter agreements are a common component of the relationship between registered investment advisers and their largest investors. Side letter agreements often provide expanded rights and preferences to certain investors; concomitantly, other investors have narrower rights. Regulators in the U.S. and UK have raised concerns about undisclosed side letters. So, what are the limitations on the side letters?

The most common terms and conditions found in side letter agreements include:

  • Liquidity preferences or waiver of lock-up rights.
  • Reductions in, or
Read More

BE-180 Benchmark Survey – Financial Services Transactions with Foreign Persons

Middle market and large players in the U.S. private equity market are familiar with making periodic filings with the U.S. Bureau of Economic Analysis. The BEA, an agency of the U.S. Department of Commerce, collects economic data regarding investments and transactions between U.S. and foreign persons (for example, foreign investment in the U.S., U.S. investment abroad, and international services transactions). Information is reported by way of five-year benchmark surveys as well as annual and quarterly surveys for cross-border investments … Read More

PE Firm Enters Into $39M Settlement with SEC

Blackstone Group LP, the world’s largest private equity firm, recently entered into a $39M settlement with the SEC for failing to fully disclose its fee practices. The practices involved accelerating monitoring fees to portfolio companies prior to their sale or IPO, thereby reducing the sale/IPO price. While the monitoring fees were disclosed to investors before they invested, the acceleration practice was not disclosed until later. The SEC also found that Blackstone received a “substantially greater” discount in legal fees, while … Read More