The role of the CCO has long been defined by labor-intensive, manual tasks – from monitoring insider trading risks to ensuring regulatory filings are both accurate and timely. Artificial intelligence (AI) offers the promise of automating a substantial portion of those routine processes, freeing CCOs to focus on higher-level strategic responsibilities, such as ethical risk management, policy development and stakeholder engagement. Effective use of AI in compliance can transform a CCO from a reactive “policeman” role to that of a strategic partner – an “Algorithmic CCO” for the digital age. This second article in a two-part guest series by Brian Meyer, partner at AirGC, discusses the changing skill set required of the modern CCO, practical steps for implementing AI in compliance functions and the future of AI in hedge fund governance. The first article examined the evolution of hedge fund governance; current and emerging AI use cases in compliance; and potential regulatory challenges. See “Understanding and Mitigating Risks of Using ChatGPT and Other AI Systems” (Jul. 6, 2023). Read full article …

Although the new Trump administration is widely expected to favor business interests and ease regulatory burdens, the SEC is sure to continue its work rooting out misconduct in the financial markets. At this year’s Securities Enforcement Forum New York, a panel of present and former SEC attorneys discussed the critical stages of an investigation by the SEC Division of Enforcement. They offered guidance on preparing for initial contact with SEC staff; avoiding friction during the course of an investigation; preparing for interviews and on-the-record testimony; obtaining reverse proffers by the SEC; and managing the Wells process, negotiations and settlements. This article distills the key takeaways from the program. See “SEC and CFTC 2024 Enforcement Results: Record-High Financial Remedies Across Fewer Actions” (Jan. 30, 2025); and “Speeches Outline the Ethos, Direction and Priorities of the SEC’s Division of Enforcement Under Gurbir Grewal” (Jan. 13, 2022). Read full article …

Publishing marketing materials that are subject to Rule 206(4)‑1 under the Investment Advisers Act of 1940 (Marketing Rule) brings a new level of risk to firms, and reviewing those materials can be complex and time consuming. There are steps that legal and compliance departments can take, however, to efficiently create a review process that brings those materials into alignment with Marketing Rule requirements by leveraging technology and adopting a business-minded approach to find solutions. A panel at the CFA Institute’s (CFA) 28th Annual Global Investment Performance Standards Conference, entitled “Marketing Material Reviews Dos and Don’ts,” provided three different perspectives on how to mitigate risks around marketing materials. The program was moderated by Karyn D. Vincent, senior head, global industry standards at CFA, and featured Johanna Anders, head of regulatory compliance at Harris Associates; Janice Kitzman, partner at Cascade Compliance; and Christine Ayako Schleppegrell, partner at Morgan Lewis. This article summarizes the key takeaways for private fund managers. For more insights from Schleppegrell, see “Morgan Lewis Program Previews Fall 2024 Regulatory Developments” (Oct. 10, 2024). Read full article …

On January 16, 2025, the SEC announced it had reached a settlement (Order) in an enforcement action against hedge fund managers Two Sigma Investments LP and Two Sigma Advisers LP (collectively, Two Sigma). The SEC accused the advisers of failing to act on internal information that employees brought to their attention concerning improper employee access to daily live trading algorithms; to reasonably supervise their personnel; and to maintain policies and procedures that would have resolved such issues promptly. The SEC also alleged violations of the Securities Exchange Act of 1934 whistleblower provisions relating to disclosures that departing employees had to make about whether they had made complaints to regulators. Though legal experts broadly concur on the need for robust whistleblower protections, the SEC has, in the view of some, aggressively enforced whistleblower protections in recent years without always providing detailed guidance to help fund managers grasp what practices are or are not legal when it comes to separation agreements. To understand the issues at the heart of the SEC’s enforcement action against Two Sigma, and to draw lessons regarding compliance best practices, this article outlines the Order and presents key takeaways from the case. See “SEC and CFTC Whistleblower Reports Reflect Continuing Vitality of Programs” (Jan. 16, 2025). Read full article …

The SEC has fined 12 registrants $63.1 million in a new round of settlements under its risk-based initiative (Initiative) to investigate registrants’ preservation of electronic communications on unapproved electronic devices and systems (off-channel communications). As in other settlements under the Initiative, the latest respondents allegedly failed to preserve their employees’ off-channel communications and supervise employees with a view to preventing violation of SEC recordkeeping requirements. Separately, the SEC announced it had commenced a record-setting number of enforcement actions in the first quarter of its 2025 fiscal year, which ran from October through December 2024. This article discusses the increased enforcement activity and the eight new settled enforcement orders. See “26 Firms Fined Nearly $393 Million in Newest Off‑Channel Communications Settlements” (Sep. 26, 2024). Read full article …

A regulatory specialist and tax attorney have joined Proskauer’s private funds group. Nathan Schuur is a partner in the firm’s Washington, D.C., office, having previously served as counsel to an SEC Commissioner and in the Rulemaking Office of the Division of Investment Management. Christine Harlow is a tax partner in the New York office, where she brings more than two decades of experience in advising private funds, including hedge funds, private equity funds, hybrid funds, joint ventures and credit funds, on tax law issues. For another recent addition to Proskauer, see “Patrick Dundas Is Newest Member of Proskauer’s Private Funds Group” (Dec. 5, 2024). Read full article …