Posted by Ari Berman, Tom Hill, and Cassie Lentchner, Pillsbury Winthrop Shaw Pittman LLP, on Wednesday, October 9, 2019
Editor's Note: Ari Berman and Tom Hill are partners and Cassie Lentchner is senior counsel at Pillsbury Winthrop Shaw Pittman LLP. This post is based on a Pillsbury memorandum by Mr. Berman, Mr. Hill, Ms. Lentchner, and Stephen Amdur.
Takeaways
- Private funds continue to face heightened secondary liability risks arising from their portfolio investments.
- The DOJ’s False Claims Act litigation against a private equity firm emphasizes the importance of pre-acquisition due diligence and robust compliance programs.
In an age of heightened litigation risk and a motivated Securities & Exchange Commission (SEC), private funds need to be increasingly mindful of secondary liability risks, especially when evaluating costs and benefits of potential portfolio company ownership structures. Given the uncertainties, firms must take steps to mitigate such risks—including documenting oversight, observing corporate formalities, ensuring the creation and implementation of strong internal controls, and adequately training professionals who serve as directors.
