Compliance June 9, 2020

SS&C Advent Faces Second Licensing Lawsuit

Echoing claims in an earlier suit filed by SEI, Arcesium is accusing SS&C Advent of abusive and anti-competitive licensing practices.

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A second licensing abuse lawsuit targeting Advent Software and SS&C Technologies, collectively referred to as SS&C Advent, has been filed in a federal court, this one in the U.S. District Court for the Southern District of New York.

Filed by a financial services back-office technology firm known as Arcesium, this second lawsuit echoes claims included in an earlier lawsuit filed by SEI Global Services. With some variations in the particulars, the plaintiffs in both lawsuits suggest the SS&C Advent defendants are engaging in anti-competitive, abusive licensing practices.

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“Defendants and Arcesium compete to provide middle- and back-office post-trade technology support solutions to asset managers, notably to major hedge funds and hedge fund administrators,” the Arcesium complaint states. “This lawsuit challenges defendants’ attempts to prevent and destroy competition in this industry. Defendants’ actions violate the anti-trust laws, the laws against interference with business relations and Arcesium’s contractual rights.”

The lawsuit suggests that the SS&C Advent defendants offer accounting software known as Geneva that is widely used by asset managers. As the plaintiffs explain, Arcesium and SS&C Advent entered into a “reseller agreement” in 2015, allowing Arcesium to resell Geneva by integrating it into the solutions that Arcesium offers its customers. According to the complaint, the 2015 agreement eliminated the need for Arcesium’s customers to negotiate directly with SS&C Advent for their own licenses to use Geneva.

“It also allowed Arcesium’s customers to take advantage of Arcesium’s superior post-trade solutions while relying on Arcesium for service and support of Geneva,” the complaint states. “Crucially, the 2015 agreement grants Arcesium robust rights to continue providing Geneva and support for Geneva to its existing customers, should the 2015 agreement expire or be terminated. The continuation rights were and are business-critical for Arcesium and its customers, because changing from one accounting software solution to another is extremely difficult and disruptive for an asset manager.”

Such a change would disrupt not only the customer’s portfolio accounting, but also its ability to perform post-trade tasks that draw on the customer’s accounting information, according to the plaintiffs. The continuation rights “thus provide a critical contractual guarantee to Arcesium and its customers that they can avoid such difficulty and disruption.”

The complaint continues: “Defendants’ publicly stated goal is to ‘take over the world’ and be ‘the world’s dominant platform’ for post-trade technology solutions. Consistent with that goal, defendants have adopted a strategy that seeks to undermine Arcesium’s ability to compete and would destroy Arcesium’s continuation rights. The actual and potential disruption caused by defendants’ unlawful conduct and breach of contract is enormous—for Arcesium, its customers and the market.”

With this background laid out, the plaintiffs ask the court to issue an injunction requiring the SS&C Advent defendants to perform under the 2015 agreement and specifically to respect Arcesium’s continuation rights, including, but not limited to, by providing the license keys necessary to enable Arcesium’s continued support of its existing customers. The complaint also asks the court to issue an injunction barring defendants from interfering with Arcesium’s relationships with its current customers and with its efforts to land new customers. Finally, the complaint calls for the awarding of financial damages to Arcesium based on the defendants’ alleged anti-competitive conduct and their alleged breach of the 2015 agreement.

The SS&C Advent defendants have not yet responded to a request for comment. However, in response to the previous SEI lawsuit, they suggested the suit was filed without merit, adding that SS&C Advent “abides by its contracts.”

The full text of the new complaint is available here.

Compliance June 8, 2020

Close Coordination Expected Between New DOL Rule and SEC’s Reg BI

Such alignment would be consistent with what the Department of Labor leadership has been signaling for a number of years now.

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News emerged late last week that the U.S. Department of Labor (DOL) has filed for review a draft regulation titled “Improving Investment Advice for Workers & Retirees Exemption” with the Office of Management and Budget (OMB).

The actual language of the proposed rule is not yet available, as it must first be analyzed by OMB, but sources are speculating that this proposal likely represents the DOL’s “new fiduciary rule,” and that the “exemption” referenced in the title of the rule will be related to the Regulation Best Interest (Reg BI) package currently being implemented by the U.S. Securities and Exchange Commission (SEC).

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Speaking with PLANADVISER about this development, George Michael Gerstein, co-chair of the fiduciary governance group at Stradley Ronon Stevens & Young, says he indeed expects the forthcoming regulation to be closely coordinated with Reg BI, such that an entity’s compliance with Reg BI may very well make it exempt from the Employee Retirement Income Security Act (ERISA)’s fiduciary duties as policed by the DOL.

“That coordination would be consistent with what the DOL leadership has been signaling for a number of years now,” Gerstein says. “The DOL leadership under President [Donald] Trump has emphasized that they want the SEC to take the lead in terms of conflict of interest regulations, particularly when it comes to brokerage practices. It now seems likely that, if a broker/dealer [B/D] engages in actions that amount to providing investment advice under the Employee Retirement Income Security Act [ERISA], to the extent that the entity complies with Reg BI, that will be sufficient for meeting ERISA’s fiduciary duties.”

Of course, this outlook will remain speculative until such time as the actual rule text emerges from OMB. Even so, Gerstein says, one can be pretty confident of what is coming, simply based on the Trump administration’s demonstrated de-regulatory agenda.

“I think their idea is that firms have made a number of important changes for the purposes of complying with Reg BI, and so the administration wants them to be able to leverage those changes as much as possible,” Gerstein says.  

One thing he will be watching for is the new DOL rule’s treatment of rollovers and related advice. This could be an area where some distinctions are drawn with Reg BI. 

“That will be an interesting part of this discussion,” Gerstein says. “Clarifying the rules and responsibilities around rollovers has been an outstanding issue in the wake of the circuit court decision that overturned the Obama administration’s much more expansive fiduciary rule update. Overall, I see this as the DOL catching up on a project that has been hanging over it for some time. They clearly did not want to deal with the fiduciary reform issues in the midst of the SEC’s drafting of Reg BI. But, the time has come, and it seems clear the DOL is going to try to bootstrap its new regulation off of Reg BI.”

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