David W. Grim

The U.S. Securities and Exchange Commission (SEC) recently dismissed charges against the defendants in the first-ever case related to enforcement of the liquidity risk management rule adopted in 2016. Stradley Ronon argued on behalf of the independent directors that the SEC had no legal basis for its aiding and abetting charges as the independent trustees did not write, review or even see the liquidity classifications that formed the basis for those charges; did not substantially assist the alleged violation; and otherwise complied with all of their obligations pursuant to the Liquidity Rule.

Partner Jan Folena, who led the defense of the directors, told Fund Board Views that advisers and fund boards are likely to have questions for their counsel about how and to what extent they are required to comply with the Liquidity Rule. She also told the publication that the fund industry must comply with the seven-day redemption requirement in the Investment Company Act of 1940, and liquidity continues to be an important part of that obligation.

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