Regulatory Forum

The SEC and CFTC jointly issued a proposal to significantly amend and reduce Form PF reporting requirements for certain registered investment advisers to private funds. If adopted, the proposal would eliminate Form PF filing requirements for small and mid-sized private fund managers and would only be applicable to private fund managers with more than $1 billion in private fund assets under management (AUM), and the large hedge fund definition would be increased to $10 billion in hedge fund assets AUM. This would reduce the number of large HF managers subject to quarterly reporting on Section 2 of Form PF and current reporting on Section 5 within 72 hours of certain events related to investment losses, market volatility, and liquidity. Moreover, the events triggering Section 5 reporting would be scaled back. Private equity firms would no longer be subject to reporting on Section 6 in the event of material governance changes, early termination, and adviser-led secondaries. Other proposed changes would reduce Form PF reporting burden resulting from prior amendments to Form PF applicable to large hedge funds or all filers.

The proposal will be open for comment for at least 60 days and will not impact Form PF reporting that is due by April 30, large hedge fund reporting that is due by May 29, or any required material event disclosures under Section 5 or 6 in the near term. The SEC has proposed at least a 12-month transition period prior to a compliance date after adoption, but has requested comment on the proposed transition period. The SEC noted that they are mindful of the October 1, 2026 compliance date for the 2024 amendments and will consider how the timing of amendments that are adopted relate to that timing. We will continue to monitor the status of this proposal and its impact on future Form PF reporting obligations of clients.

The 1st quarter of 2026 was a continuation of recent themes under the current leadership of the SEC. In Congressional testimony in February, Chairman Atkins reiterated his mandate to recommit the agency to its core mission of protecting investors; maintaining fair, orderly, and efficient markets; and facilitating capital formation. He noted his regulatory agenda, including his plan to “make IPOs great again,” coordinate with the CFTC through their joint Project Crypto efforts (the SEC and CFTC subsequently announced an MOU to guide their coordination and collaboration), and modernize oversight of digital assets. He promised that the SEC’s enforcement program would return to “first principles” by focusing on fraud and investor harm. In March, to a grateful audience, Atkins announced a long-awaited interpretive release on crypto assets. This theme of more measured regulation was reinforced in an early April announcement that the SEC proposed to cut its budget for fiscal year 2027 by 11% as it focuses on fiscal discipline, organizational agility, and technological modernization.

There were several leadership changes at the SEC in Q1, including the resignation of Enforcement Division Director, Judge Margaret Ryan, who will be replaced by David Woodcock, Partner at Gibson, Dunn & Crutcher LLP and a former Regional Director of the SEC's Fort Worth Regional Office. In addition, two new Deputy Directors of the Enforcement Division were named; Keith Cassidy was officially named Director of the Division of Examinations; and new staff members were named in the Division of Corporation Financial and General Counsel's Office. Standish Compliance's Q1 2026 Regulatory Update summarizes these changes, noteworthy enforcement activity, rulemaking, and guidance.

In its Enforcement Results for Fiscal Year 2025, the SEC noted that it had made a necessary course correction in its approach to enforcing the federal securities laws in the context of crypto assets and singled out seven crypto-related cases the agency now views as a "misinterpretation" of the federal securities laws. As an extension of this sentiment, Q1 2026 crypto enforcement activity was focused on dismissing prior cases rather than bringing new cases. In March, the SEC dismissed the 2024 enforcement action against Nader Al-Najo and relief defendants for perpetrating a multi-million-dollar fraudulent crypto asset scheme involving a social media platform called BitClout and its native token. This dismissal follows a pattern under the SEC’s new leadership of scaling back on its "regulation by enforcement" approach toward crypto, including similar actions against other firms. The dismissal does not mean that original allegations were unfounded but indicated that the agency lacked sufficient evidence to succeed. (See https://www.sec.gov/enforcement-litigation/litigation-releases/lr-26499.) In January, the SEC dismissed the 2023 enforcement action against Gemini Trust Company, a cryptocurrency exchange founded by Tyler and Cameron Winklevoss, after investors in its lending program recovered their assets in full through the Genesis Global Capital bankruptcy process between May and June 2024. The SEC noted that it took into account the “100 percent in-kind return of Gemini Earn investors’ crypto assets,” as well as state and regulatory settlements involving Gemini related to the Gemini Earn program. (See https://www.sec.gov/enforcement-litigation/litigation-releases/lr-26465.)

The SEC charged Ally Invest Advisors Inc. with breach of fiduciary duty for failing to fully and fairly disclose (1) material facts concerning its selection of a thirty percent cash allocation for its no advisory fee Cash-Enhanced “robo-advisor” accounts, including the resulting conflict of interest; and (2) Ally Invest’s application of its stated investment methodology in such accounts.

The SEC entered final judgment in 2015 case against Kevan Saidgh, an entrepreneur who was tipped by a friend and work colleague who had in turn been tipped by an analyst in J.P. Morgan Securities LLC’s San Francisco office, concerning material nonpublic information about two corporate acquisitions in which J.P. Morgan played an advisory role.

The SEC issued a long-awaited interpretive release regarding the circumstances under which it will characterize crypto assets as securities and transactions involving crypto assets as securities transactions. In summary, the guidance confirmed that digital or tokenized securities that constitute financial instruments enumerated in the definition of "security" that are formatted or represented by a crypto asset, where the record of ownership is maintained in whole or in part on or through one or more crypto networks are deemed to be securities. The SEC noted that "a security is a security regardless of whether it is issued, or otherwise represented, offchain or onchain. All devices and instruments that have the economic characteristics of a security are securities regardless of format or label." In contrast, the guidance clarified that a number of other categories of crypto assets and related activities are NOT securities or securities offerings based on their nature and characteristics, including each of the following:

• Digital Commodities – Crypto assets that are intrinsically linked to and derive their value from the programmatic operation of a crypto system that is “functional,” as well as supply and demand dynamics, rather than from the expectation of profits from the essential managerial efforts of others.
• Digital Collectibles – Crypto assets that are designed to be collected and/or used and may represent or convey rights to artwork, music, videos, trading cards, in-game items, or digital representations or references to internet memes, characters, current events, or trends, among other things.
• Digital Tools – Crypto assets that perform a practical function, such as a membership, ticket, credential, title instrument, or identity badge.
• Stablecoins – Defined in the GENIUS Act as “payment stablecoin issued by a permitted payment stablecoin issuer.”
• Protocol Mining, Staking & Wrapping – Protocol mining, protocol staking and the "wrapping" of non-security crypto assets, as such complex activities are described in the release, do not involve the offer and sale of a security.
• Airdrops – Certain crypto asset disseminations known as “airdrops” do not involve an “investment of money” under the Howey test.

The SEC release further provided important guidance on the nature of the representations or promises made when offering non-security security crypto and what may constitute a security offering, including the source of the representations or promises, the medium by which they are communicated, and the level of detail they must provide.

While this new guidance provides helpful clarification regarding certain digital assets that can reasonably be excluded from the definition of security for purposes of reporting under an adviser's code of ethics, the full analysis is still very nuanced. Accordingly, advisers and their employees who actively engage in investing in crypto assets should review the guidance carefully and consult with counsel before concluding that their activities are not covered by the federal securities laws.