Asset Management Litigation/Enforcement

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.