In a disquieting decision for the managed fund industry, a federal court in the Southern District of New York ruled earlier this year that the attorney-client privilege may not extend to communications between a portfolio company’s counsel, on one hand, and board members appointed by an investment fund shareholder, on the other. Given the commonplace practice of fund managers appointing their own employees and partners to the boards of the companies in which they invest, the decision is a warning to act with caution when a portfolio company’s lawyers communicate with fund representatives. As discussed below, there are several precautionary steps that can be taken to try to protect the privilege.
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