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SEC proposes new rules to protect private fund investors

On Behalf of | Feb 14, 2022 | Securities and Compliance

The Securities and Exchange Commission announced it has voted to propose new rules intended to protect private fund investors and tighten the regulation of private fund advisors.

In an effort to improve transparency, one proposal would require registered private fund advisors to provide investors with quarterly investment statements regarding their fund fees and returns.

The advisors would also be prohibited from providing certain types of preferential treatment to investors in their funds and all other preferential treatment unless it is disclosed to current and prospective investors.

All registered advisors would also be required to document the annual review of their compliance policies and procedures in writing.

The new rules, which would amend sections of the Investment Advisers Act of 1940, are intended to strengthen protection of investors in the $18 trillion field of private funds.

“Private fund advisors, through the funds they manage, touch so much of our economy. Thus, it’s worth asking whether we can promote more efficiency, competition, and transparency in this field,” said SEC Chair Gary Gensler. “I support this proposal because, if adopted, it would help investors in private funds on the one hand, and companies raising capital from these funds on the other.”

Other changes proposed by the commission include requiring an annual audit of private funds, provided to the funds’ investors, and requiring private fund advisors to obtain a “fairness opinion” from an independent provider in connection with a specific kind of transaction where the advisor may stand to profit at the expense of private fund investors.
Private fund advisors would also be prohibited from engaging in a number of activities that are considered contrary to the public interest and the protection of investors.

The proposals are open for a public comment period after publication on the SEC’s website and in the Federal Register.

The attorneys at Lewitas Hyman provide representation for financial professionals in regulatory investigations. We were formerly senior attorneys in the SEC’s Division of Enforcement and have represented clients in regulatory matters while working at Morgan Stanley and in private practice at some of the world’s largest law firms. If you are the subject of a regulatory proceeding, contact Lewitas Hyman at (888) 655 6002 or through our online contact form for a free consultation.