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    Apr. 16, 2026

SEC Penalizes Private Credit Adviser for Pandemic‑Related Valuation Practices in Season and Sell Program

On February 26, 2026, the SEC announced settled charges against a private credit adviser for improperly applying its valuation policies to its season and sell program – i.e., the adviser originates loans and then sells them to affiliated funds after a specified period of time – during the market dislocations caused by the coronavirus pandemic. According to the SEC’s cease-and-desist order (Order), the adviser promised investors the sale of loans would be at “fair value” or “fair market value,” but they were merely priced at the loan sale price minus an unamortized loan fee without factoring in asset valuation changes during the pandemic. The Order resulted in a significant penalty – despite the respondent’s voluntary remediation – reflecting the Commission’s ongoing focus under SEC Chair Paul S. Atkins on examining investment advisers’ practices to assess adherence to representations made to investors. This article summarizes the Order; explores why the adviser’s loan valuation and selling practices raised concerns for the SEC; considers the likelihood of similar enforcement actions in the future; and offers practical takeaways for advisers with season and sell programs or that otherwise engage in principal transactions. See “Coronavirus’ Impact on Valuation Results and IRR Calculations Highlights the Need for Backtesting and Remediation Measures” (Mar. 2, 2021).

Tax Compliance Complications After Converting a Private Fund to a Registered Fund (Part Two of Two)

To gain access to highly sought-after retail investors, some fund sponsors are opting to convert their existing private funds to funds registered as closed-end investment companies under the Investment Company Act of 1940. Although there are appealing benefits to operating as a regulated investment company (RIC), that status also comes with stringent tax and regulatory requirements with which sponsors must adhere. An added complication, however, is that certain aspects of private fund investing (e.g., funds of funds) are somewhat incongruent with maintaining RIC compliance, which can create unique challenges for sponsors to navigate. This second article in a two-part guest series by Faegre Drinker partner Leila E. Vaughan analyzes the benefits of RIC tax treatment; the requirements to qualify as a RIC; the consequences of failing to meet those requirements; and the types of assets that may pose problems – with suggested solutions – for RIC compliance. The first article focused on the mechanics of private fund conversions to RICs; the immediate tax consequences of the conversion; the requirements for the conversion to qualify as a non-taxable transaction; and special issues as to certain owners of the converting private fund. See our two-part series on converting a private fund into a regulatory fund: “Trend, Drivers and Time Frame” (Mar. 5, 2026); and “Investor Relations, Track Record and Board of Directors Issues” (Mar. 19, 2026).

Managing Risks From PE Portfolio Company Liabilities and VC Pay‑to‑Play Financing Provisions

A McDermott Will & Schulte program on managing portfolio company risks addressed two unique potential concerns for PE and venture capital (VC) sponsors. The first is due to the hands-on nature of PE investing, which introduces the potential for a plaintiff to pierce the corporate veil of a portfolio company to hold a PE sponsor responsible for its portfolio company’s liabilities. The second is the possibility that so-called “pay-to-play” clauses in VC transactions – which penalize existing preferred shareholders that refuse to participate in subsequent financings – may be voided under Delaware law. Together with Ben Magleby, GC and CCO at Level Equity, McDermott Will & Schulte partners Allison Scher Bernbach, William H. Gussman, Jr. and David K. Momborquette examined the risks associated with claims to pierce the corporate veil and invalidate pay-to-play clauses, as well as the ways sponsors can mitigate and manage those risks. This article distills their insights. See “How PE Sponsors Can Avoid Being Targeted by the DOJ for Parental Liability Under the False Claims Act” (Dec. 15, 2020).

Managing Inherent GP and Counsel Conflicts of Interest in GP‑Led Secondaries

As market conditions have made portfolio company exits more challenging, PE sponsors have increasingly turned to GP‑led secondary transactions to provide liquidity to existing investors. Although the industry has developed market-accepted practices for managing the inherent conflicts of interest in those transactions, recent litigation on the topic proves that sponsors and their counsel must remain vigilant to fulfill their respective fiduciary duties. To address the array of ethical issues that can arise in GP‑led secondary transactions, Sidley Austin hosted a panel on the topic at its Private Funds & Asset Management: Developments & Opportunities conference featuring partners Oren Gertner, Nicholas C. Cassin and Lisa H. Miller; as well as John Leone, managing partner at Fairview Capital Group. This article examines the growing market for GP‑led secondaries; private litigation challenging such transactions; the conflicts of interest around pricing, carried interest, expense allocations and relationships; ethical issues for attorneys; and ways to mitigate and manage the inherent conflicts.  See our two-part series on LP roll-sell elections in continuation vehicles: “Practical Tips and Pitfalls for LPs in Continuation Vehicles” (Jun. 26, 2025); and “LP Diligence Guidance and Election Options” (Jul. 10, 2025).

SEC Investment Management Director Stresses Listening, Deregulation, Democratization and Innovation

In remarks to the Private Funds Subcommittee and Investment Advisers and Investment Companies Subcommittee of the ABA’s Federal Regulation of Securities Committee on December 2, 2025, Brian T. Daly, director of the SEC Division of Investment Management (Division), discussed his desire to support innovation in the financial markets and ensure the Division listens to the needs of market participants. He also explained that the Division’s efforts during his tenure will be informed by the need for deregulation, modernization of the regulatory regime, democratization of access to alternative investments and promotion of artificial intelligence. He gave the remarks in his official capacity as director of the Division but noted that they did not necessarily reflect the views of the SEC, its individual commissioners or its staff. This article parses his remarks. See “Division of Investment Management Staff Discuss Staffing, Operations, Rulemaking and Other Developments” (Oct. 16, 2025).

Investment Management Partner Aaron Schlaphoff Rejoins Davis Polk in New York

Davis Polk has welcomed Aaron Schlaphoff back to the firm as a partner in its investment management practice in New York. He focuses on advising asset managers on a wide range of legal, regulatory and compliance matters, including as to the Investment Advisers Act of 1940 and the Investment Company Act of 1940. For commentary from Schlaphoff, see our two-part series: “How to Ensure Smooth SEC Examinations and Prepare to Respond to Inevitable Deficiency Letters” (Jan. 23, 2025); and “Strategies for Responding to the SEC and Drafting Deficiency Response Letters” (Feb. 6, 2025).

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Trailblazing Women – Contributions, Achievements and Observations of Outstanding Leaders

To mark International Women’s Day, Law Report Group editors, along with our colleagues across ION Analytics’ products, interviewed outstanding women in the industries and jurisdictions we cover. In this article, Jill Abitbol, Robin Barton, Rorie Norton and Megan Zwiebel profile notable women in the data privacy, cybersecurity, AI, private funds and anti-corruption law fields, including (i) Paula Howell Anderson, (ii) Gwendolyn Lee Hassan, (iii) Audrey Koh, (iv) Stacy Feuer, (v) Heather Egan, (vi) Jeewon Serrato, (vii) Stephanie Breslow, (viii) Anne Choe, (ix) Heather Wyckoff, (x) Angie Batterson, (xi) Jacqueline Eaves, and (xii) C. Dabney O’Riordan.

Enjoy reading their inspiring remarks here.