June 15, 2017
Litigation & Risk Management Department chair Marc Rosen was quoted in the June 15, 2017 Hedge Fund Law Report article, “Implications for Fund Managers of the Supreme Court’s Ruling in Kokesh v. SEC,” which described the Supreme Court’s unanimous ruling requiring SEC cases seeking disgorgement to be filed within five years of the violation, and the industry-wide impact of this ruling.
In addressing various ways in which the ruling changes the landscape for fund managers, the articles notes that the Kokesh ruling comes at a time when it is not uncommon for fund managers to have insurance in place to cover disgorgement costs that arise through enforcement actions, settlements and other judgments. Rosen notes that with disgorgement now a penalty, it is not likely that insurance carriers will continue to cover disgorgement claims in the plans they offer, and they are likely already “rewriting their policies.” Rosen stated that the even “more aggressive position would definitely be for insurance companies to seek to claw back money they have already paid on claims.”
Tax concerns are another consequence for funds entering into settlements with the SEC, Rosen noted. Given the prohibition against investment funds taking tax deductions on penalties, funds entering into settlements with the SEC need to pay careful consideration to the tax treatment of any payment, including disgorgements, he said.
The full in Hedge Fund Law Report article can be found here (login required).
The firm’s client alert on Kokesh v. SEC can be found here.
If you have any questions regarding this topic, please contact your primary Kleinberg Kaplan attorney or:
Marc R. Rosen