SECURITIES CORNER

The SEC released its examination priorities for Fiscal Year 2025 highlighting amendments to Form PF and Regulation S-P Rules, Cybersecurity, and Crypto Assets.

The SEC plans to focus on investor protections through new SEC rules affecting Form PF and Regulation S-P, under the Investment Advisers Act of 1940. Advisers to private funds remain a significant portion of the SEC-registered investment adviser (“RAIs”) population. The SEC will look to ensure disclosures are consistent with actual practices and compliance with the amendments to Form PF, including (i) quarterly event reports for adviser-led secondary transactions, the removal of a fund’s general partner, and an investor election to terminate a fund or an investment period; (ii) for large hedge fund advisers, reports detailing certain adverse events within 72 hours; and (iii) for large private equity fund advisers, a new section of Form PF detailing certain adverse events.

Due to their importance to retail investors, particularly those saving for retirement, the SEC will also focus on registered investment companies (RICs or funds), including mutual funds and exchange-traded funds. Examinations will review their compliance programs, disclosures, and governance practices. Particularly, the review will focus on: (i) fund fees and expenses; (ii) oversight of service providers; (iii) the consistency of portfolio management practices and disclosures; and (iv) issues associated with market volatility.

Regarding cybersecurity and Regulation S-P, the SEC plans to pay particular attention to firms’ policies and procedures, governance practices, data loss prevention, access controls, account management, and responses to cyber-related incidents, including ransomware attacks. The SEC will engage with firms during examinations about their progress in preparing to establish incident response programs designed to detect, respond to, and recover from unauthorized access to or use of customer information. The release highlighted emerging financial technologies such as automated investment tools, AI, trading algorithms or platforms, and the SEC’s plan to scrutinize the use of such technologies.

Finally, given the potential volatility and activity involving the crypto asset markets, the SEC will monitor and examine registrants offering crypto asset-related services. The examinations will focus on the offer, sale, recommendation, advice, trading, and other activities involving crypto assets that are offered and sold as securities or related products, such as spot bitcoin or ether exchange-traded products.

A multination technology company (the “Company”) specializing in e-commerce, retail, internet, and technology agreed to pay $433.5 million to settle a U.S. securities fraud class-action lawsuit. In the underlying class action investors sued the Company alleging violations of anti-monopoly or unfair competition laws. Despite requiring all merchants to choose only one distribution, the Company denied any wrongdoing and stated it entered the settlement to avoid the cost and disruption of further litigation.

The proposed settlement was filed in federal court in Manhattan and requires the approval of U.S. District Judge George Daniels. The settlement covers investors in the Company’s American depositary shares between November 2019 to December 2020. The settlement will also resolve claims they suffered when the market recognized the Company’s misleading statements and the stock price fell. If this settlement is approved, it would be among the 50 largest class action settlements.