September 14, 2023

Private Equity: Private Fund Adviser Rules Challenged In Court

In early September, six trade associations jointly filed a lawsuit in federal court challenging the validity of the SEC’s recently adopted Private Fund Adviser Rules. We’ve previously blogged about the content of the new rules and criticisms by two SEC Commissioners. This Proskauer blog discusses the basis for the legal challenge and its potential impact:

The lawsuit was filed in the form of a Petition for Review pursuant to Section 213(a) of the Advisers Act, which authorizes such a petition for persons “aggrieved” by the actions of the Securities and Exchange Commission.

The Petition asserts that the new Rules “exceed the Commission’s statutory authority, were adopted without compliance with notice-and-comment requirements, and are otherwise arbitrary, capricious, an abuse of discretion, and contrary to law, all in violation of the Administrative Procedure Act…and of the Commission’s heightened obligation to consider its rules’ effects on ‘efficiency, competition, and capital formation’” in violation of requirements for SEC rulemaking under the Advisers Act.

The filing of such a lawsuit does not automatically pause the Rules’ transition periods or otherwise delay their compliance dates.  However, such a stay of the rules may be requested or granted, either by court order as part of the proceedings or as otherwise determined by the SEC.

– Meredith Ervine