HF Side Letters Center Of SEC Attention

The Securities and Exchange Commission is turning its attention to side letter agreements that often accompany a hedge fund offering memorandum, CCH Wall Street reports. The SEC may not be accustomed to dealing with side letters, as their focus in the past has been on mutual funds, which are not permitted to have such special agreements with investors. For hedge funds, it’s a different story. “It’s not illegal for one investor to get a benefit over another,” Derek Meisner, formerly branch head of the SEC’s Division of Enforcement and now a partner with the law firm Kirkpatrick & Lockhart, told CCH Wall Street. “But the concern is over disclosure.” Meisner says the side letters “should specifically spell out that one investor may receive a benefit over another.” In announcing the SEC’s intention to review side letter agreements last month, the agency’s Susan Wyderko, director of the Office of Investor Education and Assistance, ” said these arrangement may involve material conflicts of interest that can harm the interests of other investors.”