Header graphic for print
The BD/IA Regulator Providing securities regulatory, enforcement and litigation trends for broker-dealers, investment advisers and investment funds

SEC Brings 13 Settled Enforcement Proceedings for Failure to File Form PF

Posted in Investment Adviser Regulation, SEC Enforcement

On June 1, 2018 the SEC announced that it entered into settled enforcement proceedings with 13 registered investment advisers. According to the settled orders, the advisers failed to file and update Form PF over multi-year periods, in violation of Rule 204(b)-1 under the Investment Advisers Act of 1940.  Each of the advisers agreed to a $75,000 civil money penalty.

Rule 204(b)-1 requires registered investment advisers with at least $150 million in private fund assets under management to file and update Form PF at least annually. The Form provides the SEC with information about private funds that is uses to monitor industry trends, inform rulemaking, identify compliance risks, and target examinations and enforcement investigations.  The Financial Stability Oversight Council also uses Form PF information to monitor systemic risk posed by the private fund industry.

According to the SEC, the failure to file Form PF deprived the agency of key information necessary to its regulatory initiatives, including the amount of assets under management, fund strategy, performance, and use of borrowed money and derivatives. The SEC encouraged investment advisers to “take a fresh look at whether they are meeting their reporting obligations and adjust their compliance programs accordingly.”

The SEC noted that, during the investigation, each adviser remediated its failures by making the necessary filings.

Our Take

Although the size of these penalties was modest, the SEC’s decision to bring these actions in a coordinated manner is a means of reminding registered advisers of their filing obligations. If the SEC continues to identify violations of these filing obligations, we expect that any future settlements would include larger penalties.  In addition, regardless of the size of these penalties, the public nature of the sanctions could adversely affect the investment advisers since institutional investors typically ask about enforcement matters during the diligence process.

Investment advisers with over $150 million in assets under management should ensure that they have made the necessary Form PF filings and, if not, should take prompt action to remedy that omission. Advisers that currently file with the SEC as exempt reporting advisers but are likely to cross the $150 million threshold before the end of their next fiscal year should be aware that, in addition to updating their Form ADV to include information about assets under management and a narrative brochure, they will be subject to Form PF filing requirements and ensure that their compliance policies are appropriately updated.