Ropes & Gray Attorneys Discuss Deficiency Response Letters in Private Equity Law Report

In two Private Equity Law Report articles, asset management partner Jessica Marlin and litigation & enforcement partner Matt McGinnis share tips successfully responding to a deficiency letter from the SEC’s Division of Examinations.

The first article covered the exam and deficiency process, steps fund managers can take before an SEC exam to mitigate damage and preliminary steps managers should take to prepare their response to a deficiency letter after an exam has ended. The second article highlighted ways to respond to Examinations staff upon receiving a deficiency letter, considerations when drafting a deficiency response letter, strategies for implementing the enumerated remedies, and guidance for how and whether to disclose either letter to LPs.

If the nature or extent of an identified deficiency is vague or unclear, the deficiency response is not the place to seek clarification, according to Matt. “The client could consider reaching out to the staff before responding and addressing that over the phone, with the conversation subsequently memorialized in the response letter.”

Further, a deficiency response letter should be quite technical and detailed – “probably more specific than you might think,” said Jessica. “Another CCO should be able to pick up the response letter and know what to do with it. It should be very prescriptive and specific.” If a manager is making changes to disclosures or to its policies and procedures, those changes in language should be excerpted in the response letter. Remedial actions taken during the exam process, or before the deficiency letter was received, should also be clearly documented and explained.