Dechert’s asset management litigation and enforcement practice offers clients unparalleled experience handling some of the most diverse and challenging matters of their kind.
The country’s leading asset managers, boards and industry organizations turn to Dechert to aggressively handle their most significant and sensitive matters, from the trenches in trial courts across the country, to the highest appellate courts, to federal, state and global regulators. We are the “go to” firm for our asset management clients, drawing on our deep understanding of the asset management industry and regulations in the U.S. and our deep bench that includes alumni from the SEC and DOJ.
Our clients include advisers and directors for open-end and closed-end funds, BDCs, private funds, permanent capital vehicles, and hedge funds. We help navigate a host of litigation, enforcement and examination issues, using our extensive knowledge of asset management regulatory reporting requirements and compliance.
We routinely advise on matters challenging practices at the evolving core of the asset management industry, such as disclosures, adviser compensation, valuation, conflicts of interest and fund governance. We handle matters involving a wide range of products and complex investments, including derivatives, futures, and asset-backed securities.
We litigate claims all over the country under the federal securities laws and the 1940 Acts, class claims alleging market manipulation under the Commodity Exchange Act, derivative cases, FINRA arbitrations, bankruptcy “clawback” litigation claims and other high-stakes commercial litigation matters ranging from merger litigation to appraisal proceedings.
We also have extensive experience with the full range of potential asset management related proceedings at the state and self-regulatory level, as well as in addressing derivative demands, advising Special Litigation Committees and spearheading MDL proceedings. Our team also frequently counsels on strategies for preventing or mitigating the impact of asset management-related litigation and enforcement proceedings, including review of disclosures and 15(c) processes.
Obtaining Excellent Results for Asset Management Clients in Complex Litigation and Enforcement Matters
Dechert’s unparalleled combination of litigation expertise, deep industry relationships, and extensive knowledge of asset management regulatory reporting requirements have led to landmark and precedent-setting victories. We know the players focused on asset managers and their potential strategies – and we have developed successful defenses and resolutions efficiently based on this well-honed and extensive experience.
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Asset Management Litigation:
- Represented Calamos Investments in full trial victory against against a claim under Section 36(b) of the Investment Company Act of 1940 brought by a mutual fund shareholder alleging that CAL charges excessive investment advisory fees to its flagship mutual fund: This matter is an example of Dechert’s market leading position in Section 36(b) “excessive fee” litigation on behalf of advisers and trustees. We took a particularly aggressive approach to this case, from the outset defending the trustees’ approval of the adviser’s fees as a reasonable business judgment. After we were able to narrow plaintiffs’ claims following summary judgment, we proceeded to trial -- and we prevailed, in a 108 page ruling that fully adopted our trial defenses and rejected plaintiffs’ claims in their entirety. After having exposed the total weakness of plaintiffs’ claims, they elected not to appeal from the trial court’s ruling -- without the payment of any compensation.
- Represented OppenheimerFunds, Inc., OppenheimerFunds Distributor, Inc., and numerous officers of OFI in class action litigation brought by investors in seven municipal bond funds under the Securities Act of 1933: The plaintiffs alleged that the funds’ “capital preservation” investment objectives were false and that the funds made misrepresentations regarding the risks associated with certain derivatives in which the funds invested. These seven consolidated actions are an example of Dechert’s experience with securities fraud class actions, including actions involving the inner-workings of funds and their investments. As a result of our efforts, all seven of the consolidated cases were settled for pennies on the dollar.
- Represented Schwab in class shareholder litigation where named plaintiff Northstar Financial Advisors (“Northstar”) alleged that Schwab violated the Total Bond Market Fund’s fundamental investment objective and concentration limitations causing significant losses: Notably, Plaintiffs relied upon state-law contract and fiduciary breach claims rather than federal securities laws. Dechert took over the representation of Schwab after a Ninth Circuit decision upholding those claims and then successfully obtained dismissal of all claims on SLUSA grounds, which was upheld by the Ninth Circuit (not withstanding that court’s prior holdings). This victory was recognized by the Financial Times as one of only three “Standout” litigation matters for its North America Innovative Lawyers Awards in 2019.
- Represent numerous leading mutual fund families in connection with fraudulent conveyance litigation arising out of the bankruptcies of the Lyondell Chemical Company, the Tribune Company, and Nine West Holdings: In these cases, plaintiffs alleged that leveraged buyouts of public companies rendered the companies insolvent, leading to billions of dollars of losses for company creditors. After the companies filed for bankruptcy, Plaintiffs brought state and federal claims to “clawback” the money that shareholders – including many mutual funds – received in connection with the LBOs. In Lyondell, all claims were dismissed without any payment by our clients. In Tribune – a case in which Dechert is the court-appointed liaison counsel for all mutual fund defendants – all claims have been dismissed, although an appeal is pending. The Nine West litigation was filed in early 2020 and is ongoing.
Asset Management Enforcement:
- Represented investment adviser and affiliated distributor in an SEC investigation concerning two bonds funds that used total return swaps to add substantial CMBS exposure and suffered substantial losses during the credit crisis. In the Matter of OppenheimerfFunds, Inc. and OppenheimerFunds Distributor, Inc. (Admin. Proc. File No. 3-14909).
- Represented investment adviser and affiliated distributor in SEC investigation concerning the use of brokerage commissions to reduce revenue sharing obligations. In the Matter of OppenheimerFunds, Inc. and OppenheimerFunds Distributor, Inc. (Admin. Proc. File No. 3-12038).
- Represented investment adviser and its affiliated distributor before the attorneys general in Oregon, Maine, Illinois, Texas, New Mexico and Nebraska regarding investments made by those respective states’ 529 College Savings Plans.
- Represented investment adviser and affiliated distributor in the first settled SEC enforcement action that grew out of a nationwide sweep regarding how mutual fund sponsors arrange and pay for distribution (“distribution in guise”). In the Matter of First Eagle Investment Management, LLC and FEF Distributors, LLC (Admin. Proc. File No. 3-16823).
- Represented investment adviser to venture capital funds that invest in early-stage technology companies in connection with the first settled SEC enforcement action involving alleged violations of the SEC’s “Pay-to-Play” rule for investment advisers. In the Matter of TL Ventures, Inc. (Admin. Proc. File No. 3-15940).
- Represented investment adviser in SEC investigation concerning proxy voting. In the Matter of Three Bridge Wealth Advisors, LLC (Admin. Proc. File No. 3-19539).
- Represented investment adviser in an SEC investigation concerning valuation of “odd lot” allocations of asset-backed fixed income securities.
- Represented investment adviser in an SEC investigation of accounting for contingent liabilities by a BDC.
- Represented an investment adviser in connection with an SEC investigation of insider trading and Section 204A policies and procedures.
- Represented investment adviser in an SEC and CFTC investigation concerning the trading and valuation of swaps and swaptions by an employee of the firm.
- Represented alternative investment manager and registered broker-dealer in FINRA investigations of Reg SHO violations and stock loan transactions and in connection with SEC and DOJ investigations concerning stock loan transactions and stock loan finders.
Demonstrated Track Record with Asset Management Regulations and Authorities in the U.S.
We are at the forefront of examinations and enforcement investigations related to asset management regulations in the U.S. We represent investment advisors, mutual funds, fund trustees and broker dealers before the Securities and Exchange Commission (SEC), Commodities Futures Trading Commission (CFTC), FINRA and state attorneys general and securities regulatory agencies. We have handled more than 80 recent asset management enforcement investigations and compliance examinations and dozens of internal investigations relating to critical issues such as:
- Risk disclosures
- Valuation
- Cross-trading
- Joint transactions
- Fee structures
- Distribution fees
- Expense allocations
- Trading algorithms
- Securities lending
- Derivatives
- Index methodologies and modeling
- Insider trading
The number of clients that turn to us to represent them in the same OCIE sweep examination provides us with significant insight into the staff’s thinking to the benefit of all of our clients. We have had remarkable success in bringing examinations to a close with no referral to enforcement, and in keeping non-public enforcement inquiries from becoming “public.” On behalf of our clients, we have successfully avoided the transition from a MUI (matter-under-inquiry) to an investigation, from an informal to a formal investigation, and obtained countless close letters following the conclusion of an investigation and/or Wells submission without an enforcement action.
Trusted Experience, Global Reach
With dedicated partners in six offices across the United States – plus a global platform of experienced financial services lawyers in the United Kingdom, Europe and Asia – our team has the multi-jurisdictional capabilities and judgment to successfully guide clients through asset management regulatory reporting requirements and public and media attention, as well as to defeat an active plaintiffs’ bar driving litigation disputes all over the world.
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SEC enforcement investigations and actions often grow out of examinations conducted by the SEC’s Division of Examinations (EXAMS). There is close collaboration and coordination between the SEC’s Enforcement Division and EXAMS, particularly among the Enforcement Division’s Asset Management Unit, EXAMS’s Investment Adviser/Investment Company Group and the SEC’s Division of Investment Management.
SEC-regulated entities consistently turn to Dechert to help navigate the examination process and to provide strategic guidance from beginning to end. Just as SEC examiners draw on the expertise of other SEC Divisions across the Commission, we draw on the legal, regulatory and enforcement expertise of our industry-leading practice groups to advise clients during the exam process. Dechert has a proven track record of heading off enforcement referrals and investigations arising from examinations by adeptly addressing and responding to exam findings and deficiencies.
Our team tracks and responds to the latest developments and EXAMS priorities, which often parallel the SEC’s other regulatory initiatives. Recent examinations have focused on a variety of issues, including fiduciary obligations, compliance programs, marketing practices, custody, compensation arrangements, asset valuation, protection of client information, due diligence practices, management of conflicts of interest and reporting obligations. We have a long history of successfully guiding investment advisers, registered investment companies and broker-dealers throughout the process.
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Consolidation in the asset management industry has led to increased mergers and acquisitions. This, in turn, has increased the exposure of market participants to the type of deal litigation that has marked M&A activity in the public-company space. Our team has successfully navigated litigation involving alleged breaches of fiduciary duty, appraisals, and other challenges to deals in numerous jurisdictions, including Delaware, California, and New York, to get the deal done and protect clients from monetary exposure. Our specialized knowledge of the asset-management industry provides us with a decided advantage in crafting strategies to defeat deal-based litigation against funds, their trustees, and their managers. For example, Dechert recently obtained a complete trial victory for a BDC acquirer – even where the Chancery Court found flaws in the target’s process – that prevented the court from enjoining the deal.
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Oversight of corporate boards and audit committees continues to be an important issue, and we handle internal investigations on behalf of companies and their boards of directors relating to violations of regulatory requirements , as well as disclosure issues, whistleblower matters, money laundering, insider transactions, financial statement irregularities, regulatory filings, market timing and insider trading issues. Our experience in negotiating and working with state, national and international enforcement authorities is exceptional.
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Hedge fund litigation is an integral part of our practice. We represent hedge funds and their directors and officers in a wide range of litigation and enforcement matters. These include government investigations and actions brought by the DOJ, SEC, FINRA and state attorneys general, as well as complex commercial and class action litigation in federal and state courts.
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We have litigated or resolved disputes for some of the largest financial institutions and investment firms in the world arising from the sale, use and performance of a wide spectrum of derivative products. We have extensive experience in claims involving a range of contractual, tort and statutory liability theories, including class claims alleging market manipulation under the Commodity Exchange Act (CEA) and claims challenging valuations, risk disclosures and collateral descriptions.
Our litigators work closely with our commodities and derivatives lawyers — themselves leaders in the creation and regulation of derivative products encompassing all commodities and asset classes — to help clients prevail in or resolve these disputes.
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We represent U.S. and multinational broker-dealers, full service firms, institutional and retail broker-dealers, equity and fixed income alternative trading systems, investment banking boutiques, and private placement agents, as well as their associated persons, in enforcement investigations by the SEC, FINRA and other self-regulatory organizations. We also help prepare these clients for FINRA and OCIE inspections and examinations, and advise them throughout the process, including helping to negotiate exam findings. Our broker-dealer enforcement and litigation lawyers also represent broker-dealers and their associated persons in disputes with customers, primarily in arbitration, and in controversies between member firms over issues such as the departure of registered representatives. Dechert’s team also advises on self-reporting and disclosure obligations as well as the collateral consequences of statutory disqualifications or other litigation or regulatory events.
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Dechert represents primary insurers, reinsurers and insurance brokers, as well as their directors and officers, in litigation and enforcement proceedings. These include securities class action litigation in state and federal courts; government investigations and actions brought by the DOJ, SEC, FINRA and state attorneys general; and internal investigations and related class actions and criminal litigation involving insurance brokerage commissions and allegations of bid-rigging.
Our litigators work closely with their Dechert colleagues who regularly represent insurance clients in non-litigation matters. We are one of the few law firms with a substantial variable products practice, while our insurance products and insurance funds groups represent numerous mutual funds that underlie insurance products and broker-dealers that distribute such products.
