Michael Asaro Quoted in The Hedge Fund Law Report on the Kovel Privilege

The Hedge Fund Law Report has quoted Akin Gump litigation partner Michael Asaro in the three installments of the article “Attorney-Consultant Privilege? Key Considerations for Fund Managers When Utilizing, Invoking and Waiving the Kovel Privilege for Consultants,” which discusses the use of so-called “Kovel arrangements” by private fund managers to extend the attorney-client privilege to interactions with consultants.

United States v. Kovel was a case before the U.S. Court of Appeals for the 2nd Circuit in which the court, as the article notes, extended the attorney-client privilege to third parties assisting attorneys in representing clients under certain circumstances. Asaro said the implementation of a Kovel arrangement is not much more expensive than having the consultant directly work with the client since you don’t need a whole legal team “managing the compliance consultant efforts.”

The Securities and Exchange Commission, according to Asaro, will scrutinize a situation to verify that a Kovel arrangement has been properly implemented. He said the commission will ask questions “if stuff isn’t buttoned up or doesn’t make sense.”

When composing an engagement letter pertaining to a Kovel arrangement, it is very important, the second installment notes, to make sure the proper provisions are included. Asaro said the letter “needs to be clear that the consultant is acting at the direction of counsel, so they can provide legal advice to the fund manager.” He added that maintaining the arrangement on a daily basis, however, is “a much trickier thing that people sometimes fall down on if the privilege is ever challenged.”

Asaro stressed that legal counsel “should be included in all meaningful communications” throughout the use of the Kovel privilege. Upon its conclusion, he suggested that a summary be drafted describing that an audit was performed, the parties who participated and any new procedures that were adopted as a result of the audit.

The article’s third installment describes the situations in which hedge fund managers can benefit from the use of consultants through Kovel arrangements. Sometimes, Asaro said, consultants “have a better sampling of trends than attorneys in terms of what the [SEC] staff is asking about.”

When conducting annual reviews of their compliance policies and procedures, Asaro pointed out that fund managers often have consultants brought in under Kovel arrangements, though this does force the question “of what’s privileged and whether the privilege is being waived when the results of the review are disclosed to the SEC.”