SEC Updates for Private Funds: Private Fund Rule Litigation and Marketing Rule FAQ

Private fund sponsors should be aware of two recent SEC regulatory developments with respect to (1) the newly adopted private fund rules (Rule 211(h)(1)-2; Rule 211(h)(2)-3; Rule 211(h)(2)-1; Rule 211(h)(2)-2, and Rule 206(4)-10 under the Investment Advisers Act of 1940, together, the “Private Fund Rules”) and (2) an updated FAQ with respect to the marketing rule (Rule 206(4)-1 under the Investment Advisers Act of 1940, the “Marketing Rule”).

First, the U.S. Circuit Court of Appeals for the Fifth Circuit heard oral arguments on a legal challenge to the Private Fund Rules. As has been much commented upon, the Fifth Circuit has been a receptive venue for challenges to SEC authority in recent years, and has become a preferred venue for those seeking to challenge federal regulators’ broad claims of power in general. Although there is no way to predict any outcomes in the Fifth Circuit challenge, the three-judge panel subjected the rules to detailed questioning. Second, the SEC released additional guidance concerning the amended Marketing Rule in the form of an FAQ. As discussed in the alert linked below, these developments warrant attention.