Investment Management – Secondaries Bulletin February 2020

Investment Management Updates - February 2020

SEC Proposes to Modernize Advertising Rules for Investment Advisers 

On November 4, 2019, the Securities and Exchange Commission (SEC) issued a proposal to modernize the advertising rules under the Investment Advisers Act of 1940. The proposal includes a broader definition of “advertisement” (“any communication, disseminated by any means, by or on behalf of an investment adviser”) and explicitly extends the rule obligations to fund investors. The proposal includes a requirement that advertisements be reviewed and approved by a designated employee before dissemination, specific prohibitions on certain types of performance advertising, and two categories of performance advertising (retail and nonretail), and permits testimonials, endorsements, and third-party ratings, subject to certain conditions and disclosures. In addition, the proposal amends Form ADV to include information about the adviser’s use of performance results and other information in its advertisements. The proposal was published in the Federal Register on December 10, 2019, and closed for comments on February 2, 2020. 

For more information about the SEC’s advertising rules proposal or any other Investment Advisers Act matters, please contact Kris Hinson at

Liu v. SEC at the U.S. Supreme Court

For the third time in the last four years, the U.S. Supreme Court will take up an important case involving the SEC’s enforcement authority. This year, the case is Liu v. SEC, No. 18-1501, and it concerns whether the SEC may seek and obtain disgorgement in federal court actions, which is a critical aspect of the SEC’s enforcement authority. Of the more than $4.3 billion in monetary remedies the SEC collected last year, more than $3.2 billion (nearly 75 percent) was disgorgement. The central issue in Liu is whether disgorgement is a “penalty,” in which case the SEC lacks authority to seek it in federal proceedings, or an “equitable remedy,” as federal courts have held for decades. The Liu case will be argued on March 3, 2020, and the Supreme Court will likely issue its decision in June 2020. 

For more information about the Liu case or any other regulatory enforcement matters, please contact Paul Monnin at or Tim Fitzmaurice at

IRS Guidance on Partnership Interests Expected Soon

The tax landscape has changed considerably since the passage of the Tax Cuts and Jobs Act in late 2017. Additional regulatory guidance has followed slowly in its wake. The Act’s new carried-interest rules generally impose a three-year holding period for “applicable partnership interests” gains to be eligible for preferential long-term capital gains tax treatment. The provision is generally aimed at partnership interests held by private equity, hedge fund, and venture capital investment professionals who receive incentive allocations for their performance of capital-raising and investment-management services on behalf of the applicable funds. Ambiguities exist, such as how the rules apply to the direct sale of an applicable partnership interest and the scope of certain exceptions for interests in partnership capital and for partnership interests held by certain persons employed outside the capital-raising and investment-management business. Informal statements from Treasury officials have indicated regulatory guidance in this area is expected in early 2020.

For more information about the Tax Cuts and Jobs Act’s carried-interest rules or any other federal tax matters, please contact Clay Littlefield at or Danny Reach at

CFTC Request for Communications About Cybersecurity Events

The U.S. Commodity Futures Trading Commission (CFTC) recently issued a request to its registrants on the heels of a Wall Street Journal article that described fallout from the Chinese state-sponsored hacking of cloud-based service providers. The two-part request for communications about the cybersecurity events underscores the need for legal departments to (1) be aligned with information security departments to anticipate increasing requests by U.S. regulators for information from their registrants; and (2) consider whether proactive information sharing mitigates future regulatory scrutiny.

For more information about the CFTC’s recent information security request or any other data security matters, please contact Kate Hanniford at

SEC and FINRA Exam Priorities for 2020

The SEC and Financial Industry Regulatory Authority (FINRA) each recently issued their annual examination priorities. These bulletins provide detailed summaries of key areas of focus for the regulators in the current year. The SEC’s priorities include an emphasis on cybersecurity and topics related to the fast-approaching compliance date for Regulation Best Interest (Reg BI), which takes full effect at the end of June 2020. Digital assets and robo-advice also remain notable interests of the SEC, as well as the perennial focus on anti-money laundering protections. FINRA’s priorities include a focus on Reg BI and related Form CRS and an emphasis on the review of retail and digital communications and increasingly popular cash management/bank sweep programs. FINRA members should note that, in a helpful change from past years, FINRA has included a list of additional resources to target their review of FINRA’s priorities.

For more information about these examination priorities or any other SEC and FINRA regulations, please contact Tim Foley at

Upcoming Events

Liu v. SEC: Will the Supreme Court Abolish SEC Disgorgement?” March 9, 2020, Tim Fitzmaurice and Elizabeth Gingold Clark presenting.

Negotiating Private Equity Fund Terms: Key Provisions for PE Sponsors and LP Investors and the New ILPA Model Limited Partnership Agreement,” April 16, 2020, Michael Saarinen presenting. 

Media Contact
Alex Wolfe
Communications Director

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