On February 13, US Senators Chuck Grassley, Thom Tillis, John Cornyn and Ben Sasse, all members of the Senate Judiciary Committee, introduced legislation requiring disclosure of third-party litigation financing agreements to the court and named parties to (1) any class action lawsuit filed in federal court, and (2) any claim that is aggregated into a federal multi-district litigation proceeding. Currently, the existence and terms of third-party litigation financing agreements, whereby hedge funds and other lenders finance the cost of civil litigation with the expectation of sharing in a portion of any recovery, are rarely disclosed to the court or opposing parties, creating the potential for conflicts of interest.
Continue Reading Sen. Chuck Grassley Leads Effort to Improve Transparency of Third-Party Financing in Civil Litigation

On June 29, the Securities and Exchange Commission charged Kohlberg Kravis Roberts & Co. (KKR) with violations of Sections 206(2) and 206(4) of the Investment Advisers Act of 1940, as amended, and Rule 206(4)-7 thereunder for the misallocation of broken deal expenses. The charge addressed KKR’s failure to disclose in its flagship funds’ offering materials that it did not attribute broken deal expenses to co-investor funds.
Continue Reading SEC Enforcement Action Signifies the Need for Investment Advisers to Adopt Written Expense Allocation Policies

On April 22, the European Securities and Markets Authority (ESMA) issued a call for information (Call for Evidence) on virtual currency. Unlike recent studies performed by the European Banking Authority and HM Treasury, ESMA is not calling for comment on virtual currencies as a payment technology or alternative form of money. In particular, ESMA is requesting information on three topics: 1) virtual currency investment products; 2) virtual currency based assets, securities and asset transfers; and 3) the application of distributed ledger technology to securities and investments. The Call for Evidence states that ESMA has been monitoring and analyzing virtual currency investment over the last six months to understand the developments in the market, the risk and benefits for investors, and the impact on market integrity and financial stability.
Continue Reading ESMA Issues Call for Evidence on Virtual Currency

On March 26, the European Securities and Markets Authority (ESMA) published an updated questions and answers (Updated Q&A) of the application on the Alternative Investment Fund Managers Directive (AIFMD). The Updated Q&A includes updated and new questions and answers on reporting, notification, additional own funds and scope as discussed below.
Continue Reading ESMA Updates Q&A on the AIFMD

On March 11, the European Securities and Markets Authority (ESMA) published its Report No. 1, 2015, on trends, risks and vulnerabilities in the European Union securities markets, covering the time period from July to December 2014. The Report concludes that the EU securities market remains tense, characterized by high asset valuations. Although asset prices were generally stable over the period, strong price movements occurred in foreign exchange rates and commodity prices. Corporate funding in the capital markets, however, increased overall during the time period. The Report cited the following factors as contributing to the continued tense EU securities markets: (1) the low-interest rate environment;( 2) public debt policies in the EU member states; (3) high volatility in both exchange rates and the commodity markets; and (4) political and geopolitical risks.
Continue Reading ESMA Issues Report Finding Tense EU Securities Market Conditions

The European Securities and Markets Authority (ESMA) published the eleventh version of its “Questions and Answers” on EMIR implementation (EMIR Q&A) on October 24. The updated EMIR Q&A responds principally to questions that have been raised in respect of meeting applicable trade repository (TR) reporting requirements. 

Of note, ESMA has now clarified that any third country firm not originally subject to EMIR trade reporting obligations that subsequently becomes a financial counterparty subject to EMIR—for example as a consequence of relocation to the EU or because it is an investment fund managed by an alternative investment fund manager that becomes authorized under the EU Alternative Investment Fund Managers Directive—must comply with the EMIR reporting obligation in respect of all outstanding derivatives contracts. In addition, the updated EMIR Q&A distinguishes between reporting of block trades by investment firms that are subsequently allocated—where the block trade and the subsequent allocations must be reported—and block trades concluded by a fund manager not subject to a reporting obligation. In the latter case, if the block trade is allocated to the manager’s individual funds on the trade date, only the allocations need to be reported, whereas if the block trade is not allocated on the trade date, the block itself must be reported with the fund manager as counterparty.
Continue Reading Updated EMIR Q&A Published by ESMA