Excerpt from Fundamentals of Broker-Dealer Regulation 2016
On July 12, 2016, the U.S. Department of Justice (the “DOJ”) announced that investment firm ValueAct had entered into a consent decree in which it agreed to pay $11 million to settle charges that two of its affiliated funds acquired large stakes in Halliburton Company (“Halliburton”) and Baker Hughes Incorporated (“Baker Hughes”) in violation of the notification and waiting requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”). The DOJ asserted that ValueAct was required to make an HSR Act filing, but ValueAct had asserted that no such filing was required due to the “investment-only” or so-called “passive investor” exemption. On the heels of such announcement, the Securities and Exchange Commission (the “SEC”) provided clarification that it does not view the inability to utilize the “passive investor” exemption under the HSR Act as equivalent to an investor not being considered “passive” for purposes of Section 13(d) under the Securities Exchange Act of 1934 (the “Exchange Act”).
On Aug. 10, 2016, Caledonia Investments plc (“Caledonia”) agreed to settle Federal Trade Commission (“FTC”) charges that Caledonia violated the premerger reporting requirements of the Hart-Scott-Rodino Act (“HSR Act”) in connection with the vesting of restricted stock units (“RSUs”) in Bristow Group Inc. (“Bristow”). Pursuant to the settlement, Caledonia agreed to pay $480,000 in civil penalties. According to the government’s complaint, the vesting of the Bristow RSUs was a reportable acquisition of voting securities for which a filing, and observance of the mandatory waiting period, was required.
Investors should be reminded of their continuing obligations to monitor their holdings, even after an HSR Act filing has been made. Violations similar to Caledonia’s have been an area in which the government has previously pursued enforcement actions and secured large civil penalties.
On 23 June 2016, the British public voted to leave the European Union after 43 years of membership. Although the results of the referendum are not binding in law and there remains a possibility of a constitutional challenge, the early indications from Prime Minister Theresa May and leading figures within the ruling Conservative Party are that the United Kingdom will proceed with the so-called Brexit. How might Brexit affect alternative asset managers in the United Kingdom and the United States?
Read more here: Brexit: What Alternative Asset Managers Can Expect
The U.S. Securities and Exchange Commission (SEC) on June 1, 2016 announced a settled enforcement action against a private equity fund manager (Adviser) for acting as a broker-dealer without registering. The case is significant because it calls into doubt certain compensation practices that became nearly universal among private equity firms following SEC staff guidance.
The issue of unregistered brokerage activities by private equity fund advisers has been raised in the context of examinations and other inquiries to unregistered entities. In many cases, private equity fund advisers have been able to respond to the SEC staff’s questions without enforcement action being taken. In light of this latest action, it remains to be seen whether there has been a shift in the SEC’s or its staff’s position, which could lead to wholesale revamping of private equity fund fee structures or result in the registration of fund advisers as broker-dealers. Private equity fund advisers may wish to review their fee structures and other activities in light of the SEC’s recent action.