The Hedge Fund Law Report

The definitive source of actionable intelligence on hedge fund law and regulation

Articles By Topic

By Topic: Self-Reporting

  • From Vol. 5 No.3 (Jan. 19, 2012)

    Delaware Chancery Court Sanctions Legendary Investor Michael Steinhardt for Trading in Occam/Calix Shares Based on Confidential Information He Received While Serving as a Representative Plaintiff in a Class Action Against Occam

    In October 2010, plaintiffs Michael Steinhardt (Steinhardt), two hedge funds managed by Steinhardt, Derek Sheeler and Herbert Chen (Chen) commenced a class action lawsuit seeking to enjoin the proposed acquisition of defendant Occam Networks, Inc. (Occam) by Calix, Inc. (Calix) and challenging the fairness of the transaction.  The injunction was denied and the transaction closed in February 2011, but the litigation continued.  During discovery, the defendants learned that Steinhardt and Chen had traded in Occam and Calix shares while subject to a confidentiality order that prohibited trading in shares of Occam and Calix and the use of non-public information discovered in the course of the suit.  The defendants moved for sanctions against them.  The Delaware Chancery Court ruled that Steinhardt had violated his fiduciary duty as a class representative, dismissed him and his funds from the suit with prejudice, and imposed various sanctions on them.  The Court denied the motion as against Chen.  We detail the facts of the case and the Court’s reasoning.

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  • From Vol. 4 No.36 (Oct. 13, 2011)

    SEC Enforcement Action Against a Private Equity Fund Manager Partner Calls into Question the Value of Self-Reporting in the Private Funds Context

    The SEC recently brought an enforcement action against a partner of a private equity fund manager for allegedly usurping investment opportunities that belonged – under fiduciary duty principles and fund and manager documents – to the manager’s funds.  According to the order in the matter (Order), the manager had robust compliance policies and procedures in place, conducted an internal investigation and self-reported the partner’s alleged bad acts to the SEC.  The Enforcement Division brought an action against the partner, but did not name the firm itself in the action.  From the perspective of the manager, the fact that it was not named is a good thing, but the fact of the action itself is a bad thing.  For other private fund managers contemplating self-reporting, the important question raised by this matter is the extent to which self-reporting dissuaded the SEC from charging the manager in addition to the partner.  In an effort to answer that question – or at least to refine and particularize it – this article describes the factual and legal allegations in the Order, then discusses the implications of the matter for hedge and private equity fund managers.

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