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Regulatory Change: 2015 Diagnosis, 2016 Prognosis

Schulte Roth & Zabel's leading securities litigation practice

THFJ visited the New York office of Schulte Roth & Zabel LLP (SRZ) and met with partners from the firm's Securities Litigation Group. With offices in New York, Washington DC and London, SRZ is a leading law firm serving the alternative investment management industry.

SRZ is among only a handful of law firms to have successfully defended a federal securities fraud class action all the way through trial to a jury verdict of no liability. The lawyers in the firm's leading securities litigation practice routinely handle complex multi year matters involving high-profile financial and investment management companies and their officers involved in investigations and cases.

In recent years, regulation has become a leviathan, riddled with traps for the unwary that can lead to arbitrary, disproportionate and perverse sanctions. Elsewhere, the lack of clearly defined rules creates uncertainty over areas such as determining investor collusion or defining bribery. The absence of preventative policies and procedures is increasingly sufficient for sanctions, without any actual or intended wrongdoing.

SRZ is helping clients navigate through these treacherous waters, where one omitted policy or wrong step can suddenly result in managers being caught in the net of many other regulations. The firm's litigators are always thinking laterally about how clients could be impacted by regulations that have federal criminal, regulatory civil and private civil dimensions, sometimes involving multiple regulators, self-regulatory organisations and multiple plaintiffs. Hedge fund managers also need to think laterally about how their firm-wide positions over multiple investment vehicles, and/or across the capital structure of an investee company, could be aggregated for regulatory purposes.

SRZ's Litigation Group includes nine former Assistant U.S. Attorneys and two former Securities and Exchange Commission (SEC) officials. When THFJ met with the SRZ partners, the discussion was led by Howard Schiffman, co-chair of the Litigation Group and a former SEC Division of Enforcement trial attorney. Joining Schiffman were SRZ partners contributing in their specialist areas – Eric A. Bensky, Brian T. Daly, Harry S. Davis, William H. Gussman, Jr., David K. Momborquette, Gary Stein and Michael E. Swartz. Other key members of the securities litigation practice include Martin L. Perschetz, co-chair of the Litigation Group and a former federal prosecutor, and Charles J. Clark, litigation partner and a former SEC official who recently joined the firm.

The SRZ partners touched on the following nine hot topics during the informative discussion.


SRZ attorneys recently updated and expanded the Insider Trading Law and Compliance Answer Book 2016, a book published by Practising Law Institute and edited by Harry Davis.

Schiffman believes the seminal Newman judgment was the biggest securities law issue in 2015. "After Newman held that the remote tippees in that case were not liable, the government was pressured to meet a higher standard of proof of pecuniary benefit", Schiffman explains. Adds Davis, "Newman is a hot-button issue about breach of duty and the way courts look at it. There has to be a tangible personal benefit to the tipper and the downstream tippee must know of it".

The SRZ lawyers said they did not think that the Justice Department would succeed in its attempt to have Newman reversed, and the Supreme Court's denial of the government's appeal proved that prediction correct. Now that Newman is final, some former convictions have been overturned, such as that of SAC Capital's Michael Steinberg.

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About The Hedge Fund Journal

INFORMING THE HEDGE FUND COMMUNITY With access to some of the industry’s biggest names and an astute and talented group of writers and contributors, The Hedge Fund Journal has established itself as a trusted source of information on the hedge fund industry.