Hedge Funds Under Microscope by SEC

Guest post by Ildiko Duckor, Partner, Pillsbury Winthrop Shaw Pittman LLP

Ildiko Duckor, co-head of the Pillsbury’s Investment Funds & Investment Management practice, cautions that never before examined hedge funds should be on alert. She writes:

Earlier this month, the SEC announced the creation of its Office of Risk and Strategy  to operate within its Office of Compliance Inspections and Examinations (OCIE).  The new office will consolidate and streamline OCIE’s risk assessment, market surveillance, and quantitative analysis teams and provide operational risk management and organizational strategy for OCIE.

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IRC Section 1202: Huge Effect on Gazelles

Joseph W. Bartlett

In December 2015, after intense lobbying by, e.g., the Angel Capital Association (“ACA”) and parties interested in the early stage / innovation economy in the U.S. the so-called PATH Act makes permanent the exclusion of 100 percent of the gain on the sale or exchange of qualified small business stock (QSBS) acquired after September 27, 2010 and held for more than five years. The PATH Act also permanently extends the rule that eliminates the 100 percent excluded QSBS gain as a preference item for Alternative Minimum Tax (AMT) purposes. In addition, QSBS gain excluded from income is not subject to 3.8 percent Obamacare tax on “Net Investment Income” from capital gains (and other investment income) on high-income taxpayers. [1]

As is often the case, this development was not treated as headline news, despite the fact that the effect on U.S. gazelles (David Birch’s nickname for startups seeking to journey “from the embryo to the IPO” my phrase) and subsequent job creation is likely to be huge.

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Why Private Equity Funds Face Employment Risk

Guest Post by Dianne LaRocca – Assistant General Labor & Employment Counsel at PSEG Services Corporation

Suddenly, the advance sheets show a wave of litigation targeting private equity funds. See, e.g., Guippone v. BH S&B Holdings LLC, 737 F3d. 221 (2d Cir. 2013) (private equity funds potentially liable for WARN Act liability); Oaktree Capital Management, L.P. v. National Labor Relations Board, 452 Fed. Appx. 433 (5th Cir. 2011) (same for unfair labor practices under National Labor Relations Act); Board of Trustees, Sheet Metal Workers’ National Pension Fund v. Palladium Equity Partners, LLC, 722 F. Supp. 2d 854 (E.D. Mich. 2010) (same for multiemployer pension plan liability of a portfolio company).

Let’s take a deep breath and sort this out.

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IPO Valuation Issues Raised By Class Action Investor Lawsuit

Guest post by Karl Sjogren

Might a company be sued for pricing its initial public offering too high? Lawsuits filed in 2013 charge that Facebook set its IPO valuation too high. That headline resurfaced in December 2015 when U.S. District Judge Robert Sweet ruled that he would allow the cases to proceed as class-action lawsuits.

Reuters reports that the plaintiffs are retail and institutional investors who claim they lost money buying Facebook shares at inflated prices. They say their decision to invest was influenced by Facebook’s projected earnings from the mobile device market. Those were later lowered and so, plaintiffs say they overpaid for their stock.

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Negotiating a Series A Round

Joseph W. Bartlett

Herewith a Case Study of a transaction involving a Series A round of investment in Newco, Inc., a hip, emerging growth “gazelle” as David Birch liked to call U.S. companies running hard on the trip, as I put it, “from the embryo to the IPO.”

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