On September 12th, Norm Champ, the SEC's Director of the Division of Investment Management, gave a speech addressing the SEC's new general solicitation and "bad actor" rules, regulatory initiatives affecting the hedge fund industry, and the importance of a robust culture of compliance.

With respect to the lifting of the ban on general solicitation, Mr. Champ noted that once the removal of the ban becomes effective in the next few weeks, hedge fund issuers will be able to use a number of previously unavailable solicitation and advertising methods when seeking potential investors. However, with these new marketing opportunities also comes greater responsibility. Mr. Champ urged investment advisers to carefully review their policies and procedures to determine whether they are reasonably designed to prevent the use of fraudulent or misleading advertisements and update those policies where necessary. Hedge fund sponsors intending to rely on the new rule should also consider whether their current practices for verifying accredited investor status meet the requirements of the new rule. SEC staff will evaluate the range of accredited investor verification practices used by issuers and other participants in offerings, and endeavor to identify trends in the market, including in regard to potentially fraudulent behavior. SEC staff will also develop risk characteristics regarding the types of issuers and market participants that conduct or participate in offerings involving general solicitation and general advertising and the types of investors targeted in these offerings.

Mr. Champ noted that he has instructed Division of Investment Management rulemaking and risk and examination staff to pay particular attention to the use of performance claims in the marketing of private fund interests. In particular, the review will endeavor to identify potentially fraudulent behavior and to assess compliance with the federal securities laws, including Investment Advisers Act.

As to the recently adopted bad actor rule, Mr. Champ noted that given the serious consequences of a bad actor finding, hedge fund advisers should take care when hiring employees and screening investors, and conduct appropriate due diligence when retaining third party solicitors. He also noted that while disqualification applies only for triggering events that occur after the effective date of the rule, matters that existed before the effective date of the rule that would otherwise be disqualifying are required to be disclosed to investors.

The full text of Mr. Champ's speech is available here.

Executive compensation is once again in the news. Multiple news outlets have reported the Securities and Exchange Commission ("SEC") will soon propose rules requiring companies to disclose the ratio between what their average worker is paid and what their CEO is paid. The disclosure is required by the Dodd-Frank Act. Both the Washington Post and CNN discussed some of the reasons why it has taken the SEC so long to propose the rule. View the Washington Post article here and the CNN article here. The complexity of the calculations is made clear in this Economic Policy Institute report and in this comment letter submitted to the SEC by a student at Stanford Law School, who also happens to be a doctoral candidate in Stanford's Department of Management Science and Engineering.

Writing for the D&O Diary, Kevin LaCroix highlighted current trends in the areas of directors' and officers' liability and D&O insurance. Among other things, LaCroix discussed the implications of the SEC's new policy requiring admissions as part of any settlement.

The Harvard Law School Forum on Corporate Governance and Financial Regulation posted a summary of an article written by three finance and accounting professors on how blockholders of a company's shares can affect corporate governance when they sell, or threaten to sell, those shares.

Finally, the Securities Litigation and Regulatory Enforcement Blog posted M. Todd Scott's thoughts on director liability for failing to exercise proper oversight. Scott summarizes a recent Delaware Chancery Court opinion which reiterates the proposition that directors generally cannot be held liable for failing to exercise proper oversight without evidence that the director had a conscious disregard for their responsibilities.

September 23, 2013 – Clearing Exemption for Certain Swaps Entered Into by Cooperatives. 78 FR 52285.

October 4, 2013 – Records of Failed Insured Depository Institutions. 78 FR 54373 .