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

Category Archives: SEC Enforcement

Subscribe to SEC Enforcement RSS Feed

SEC Chairman Clayton Addresses Senate Committee

Posted in Broker-Dealer Regulation, Investment Adviser Regulation, SEC Enforcement

On September 26, 2017, SEC Chairman Jay Clayton delivered to the U.S. Senate Committee on Banking, Housing and Urban Affairs his first testimony as Chairman.  A copy of his prepared remarks may be found here. Mr. Clayton’s testimony was fairly broad in scope, covering a variety of issues of concern to the Committee, from the… Read More

NASAA Survey Finds Seniors Are Most Vulnerable to Financial Fraud

Posted in Broker-Dealer Regulation, FINRA Enforcement, SEC Enforcement

On August 21, 2017, the North American Securities Administrators Association (“NASAA”) released a survey on senior citizens and financial exploitation. The survey of the state securities regulators highlighted, among other things, the need for the securities regulators to take a stronger role in prevention and detection. The survey was conducted internally among NASAA’s membership of… Read More

Division of Investment Management Eases Compliance Deadline for New ADV Filing Requirement

Posted in Investment Adviser Regulation, SEC Enforcement

Currently pending amendments to Form ADV have a compliance date of October 1, 2017 and, as of that date, an adviser filing an initial Form ADV or an amendment to an existing Form ADV must use the revised Form ADV. In an August 2017 “Information Update,” the staff of the Division of Investment Management gave… Read More

SEC Grants Limited Relief from the Custody Rule for Advisers Relying on Clients’ Standing Letters of Instruction

Posted in Investment Adviser Regulation, SEC Enforcement

In a letter to the Investment Adviser Association (IAA), the Staff of the Division of Investment Management said that investment advisers acting pursuant to a standing letter of instruction or other similar asset transfer authorization (SLOA) established by a client with a qualified custodian would be deemed to have custody of client assets for purposes… Read More

Enforcement Focus on Advisers’ “Cherry-Picking” Continues

Posted in Investment Adviser Regulation, SEC Enforcement

The SEC banned the managing member and chief compliance officer of a registered investment adviser from the securities industry for illegal “cherry-picking” investments among the adviser’s managed accounts.  The SEC staff uncovered the trades through data analysis used to detect suspicious trading patterns. The SEC filed a complaint in federal district court in the District… Read More

Former New York Pension Official and Two Broker-Dealers Charged In Pay-To-Play Scheme

Posted in SEC Enforcement

On December 21, 2016, the SEC charged the former Director of Fixed Income for the New York State Common Retirement Fund (the “NYSCRF”) with allegedly steering billions of dollars of NYSCRF assets to two broker-dealers in exchange for hotel room stays, restaurant outings, jewelry, concert tickets and vacations.  In total, according to the SEC, the… Read More

The SEC and FINRA Preview 2017 Enforcement Priorities at SIFMA’s C&L New York Regional Seminar

Posted in Cybersecurity/Privacy, FINRA Enforcement, SEC Enforcement

On November 2, 2016, several representatives from the SEC and FINRA spoke at SIFMA’s C&L New York Regional Seminar, including from the SEC, Stephanie Avakian, Deputy Director, Division of Enforcement, and from FINRA, Susan Axelrod, Executive Vice President, Regulatory Operations, and Susan Schroeder, Senior Vice President, Enforcement.  At a general session on enforcement during the… Read More

SEC FY 2016: A Record Year for Enforcement Cases Against Funds and Advisers

Posted in SEC Enforcement

On October 11, 2016, the Securities and Exchange Commission announced that it prosecuted a record number of enforcement cases against investment advisers and investment companies in the fiscal year ended September 30, 2016. During this period, the SEC brought a record-breaking 868 enforcement actions against companies and their executives and gatekeepers for alleged misconduct. Of this… Read More

Are Your Customer Accounts in Order? SEC Announces Sweep of Broker-Dealers and Implementation of the Customer Protection Rule Initiative

Posted in Broker-Dealer Regulation, SEC Enforcement

On June 23, 2016, the Securities and Exchange Commission (the “SEC”) announced that it would begin a coordinated effort across divisions to identify potential violations by broker-dealers of Rule 15c3-3 (the “Rule”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As part of this effort, also known as the Customer Protection… Read More

Double-Check the Math: Advisers Should Not Provide Clients With Performance Data Created by Other Investment Managers Without Verifying the Information

Posted in Investment Adviser Regulation, SEC Enforcement

In a series of enforcement actions this week, the SEC made it clear that investment advisers need to substantiate the performance records of investment management firms they recommend to their clients.  In these cases, failure to do so resulted in charges of spreading “false and misleading information” in violation of Section 206 of the Advisers… Read More

Investment Management Legal + Regulatory Update – August 2016

Posted in Broker-Dealer Regulation, Fund Regulation, Investment Adviser Regulation, SEC Enforcement

This issue of Investment Management Legal + Regulatory Update discusses several current developments, including: Next on the SEC’s Regulatory Agenda: A Chief Valuation Officer? FinCEN Finalizes Customer Due Diligence Rule for Legal Entity Customers SEC Proposes Business Continuity and Transition Rules for Advisers While Staff Publishes Similar Guidance for Funds The Metaphysics of Systemic Risk… Read More

SEC Charges Private Fund Administrator with “Gatekeeper Failures”

Posted in SEC Enforcement

Add fund administrators to the list of service providers the SEC expects to act as “gatekeepers.” In two separate settled actions last week, the SEC found that a private fund administrator “caused” the managers’ unregistered private equity funds to violate the Investment Advisers Act. According to the SEC, the administrator missed or ignored clear “red… Read More

SEC Staff Throws Funds a Lifeline on Auditor Independence (For Now)

Posted in Fund Regulation, SEC Enforcement

The SEC’s Division of Investment Management provided temporary relief from the headache created for funds when the failure to meet the provisions of the so-called “loan rule” may disqualify fund auditors from being independent. In a no-action letter issued to Fidelity Management and Research, the staff said it would not recommend enforcement action if a… Read More

SEC Imposes Fine for Improper Research Report

Posted in Broker-Dealer Regulation, Research, SEC Enforcement

In March 2016, the SEC entered into a settlement agreement with a U.S. broker-dealer, which initiated research coverage of an issuer after being invited by the issuer to participate as an underwriter for that issuer’s planned equity offering.  The SEC indicated that this is its first action against a broker-dealer for violating Section 5 in… Read More

SEC Sanctions Adviser, Executives and CCO for Custody Rule Violation – Again

Posted in Investment Adviser Regulation, SEC Enforcement

On November 19, 2015, the SEC sanctioned a registered investment adviser, its two owners, and a former chief compliance officer for violating the Advisers Act “custody rule” after previously settling similar charges and agreeing to “cease and desist” from future violations.  Without admitting or denying the charges, the executives consented to the SEC’s findings that… Read More

SEC Sanctions Adviser for Misstatements in Advertisements, Client Presentations and Regulatory Filings

Posted in Investment Adviser Regulation, SEC Enforcement

The SEC found that a registered investment adviser that operates as a “manager of managers” misstated a sub-adviser’s investment performance in communications with its clients, potential clients and the SEC.  According to the SEC, these misstatements occurred despite warnings from FINRA that the use of back-tested investment performance in mutual fund advertisements was misleading and… Read More

OCIE Cautions Advisers About Outsourcing Compliance Activities

Posted in Fund Regulation, Investment Adviser Regulation, SEC Enforcement

In a Risk Alert dated November 9, 2015, the SEC’s Office of Compliance Inspections and Examinations (OCIE) said it found that outsourced compliance programs are generally effective, but some of these arrangements leave room for improvement. As part of its Outsourced CCO Initiative, OCIE examined 20 registered advisers and funds (“registrants”) that outsource their compliance… Read More

SEC Settles Charges that Investment Adviser Failed to Adequately Disclose Changes in Investment Strategy

Posted in SEC Enforcement

The SEC settled charges with two investment advisers to a closed-end fund based on allegations that the advisers failed to adequately disclose a change in investment strategy to the fund’s board and its investors.  The SEC also found that shareholder reports filed with the SEC were inaccurate. According to the SEC, the fund originally invested… Read More

SEC Sanctions Broker-Dealer and Affiliated Asset Manager for Breaching Information Barriers for Exchange-Traded Products

Posted in SEC Enforcement

On October 8, 2015, the Securities and Exchange Commission charged an investment adviser and a broker dealer for failing to maintain and enforce polices to prevent misuse of material non-public information.  Without admitting or denying the charges, the respondents agreed to pay more than $1 million to settle the charges, including disgorgement, penalties and interest…. Read More

Unlawful Crowdfunding? — SEC Institutes Public Administrative and Cease-and-Desist Proceeding Against Unregistered Broker-Dealer

Posted in Broker-Dealer Regulation, SEC Enforcement

In a proceeding on September 28th, the SEC ordered a public hearing to be held before an Administrative Law Judge within the next two months.  Further, the SEC ordered the Respondent and two companies under his control, to cease and desist from any engaging in any unlicensed and/or criminal acts of securities dealing. The Respondent… Read More

SEC Charges Investment Adviser With Failure to Adopt Proper Cybersecurity Policies and Procedures

Posted in Cybersecurity/Privacy, SEC Enforcement

A registered investment adviser agreed to settle SEC charges that it failed to adopt adequate cybersecurity policies and procedures reasonably designed to protect customer records and information as required by Rule 30(a) of Regulation S-P (the “Safeguards Rule”).  Without admitting or denying the SEC’s findings, the investment adviser agreed to a censure, to cease and… Read More

SEC Proposes Rules to Require Funds to Adopt Liquidity Risk Management Programs; Allow “Swing Pricing”

Posted in SEC Enforcement

At an open meeting today, the SEC proposed new rules and amendments to existing rules to require open-end investment companies to adopt comprehensive liquidity risk management programs.  The rules would also allow funds to use “swing pricing” to pass on the cost of large purchases and redemptions to the shareholders that cause those costs. The… Read More