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Hawke and Holton Summarize Key Takeaways from SEC’s Recent Enforcement Action

March 18, 2024

Securities Enforcement Litigation partner Daniel Hawke and Corporate & Finance senior counsel Robert Holton were quoted in the Private Equity Law Report article, “SEC Enforcement Action Targets Non Violative Use of MNPI Through Policy and Procedure Failures.” Both Hawke and Holton summarize key takeaways from a recent settlement order issued by the U.S. Securities and Exchange Commission (SEC) that follows the agency’s current approach to escalating enforcement actions around inadequate compliance policies and procedures, even in the absence of wrongful activity or improper trading.

According to the SEC, the order issues settled charges, which include a $4 million penalty, against SEC-registered investment adviser OEP Capital Advisors LP for “failing to maintain and enforce written policies and procedures reasonably designed to prevent the misuse of material, nonpublic information (MNPI) and to implement written policies and procedures reasonably designed to prevent misleading communications to current and prospective investors in the privately-offered, private-equity funds that OEP advises.” The policies and procedures violations related to not only MNPI but also the use of valuations of portfolio companies that had not been approved by OEP’s valuations committee when marketing funds.

Hawke noted that the SEC’s order is a “message case,” yet it is questionable what the SEC wants the private funds industry to understand. Holton added that the order “is clearer about the conduct it wishes to deter in connection with valuations, but it is curious that the SEC put the murkier issues relating to MNPI first and foremost.” Hawke concluded by stating that there are “significant weaknesses in the case and it seems likely that as compliance personnel and industry observers react to it, there will be more questions raised than can be answered from the details provided in the Order.”

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