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Category Archives: SEC Enforcement

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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

SEC Proposes Rules to Direct Exchanges to Require Compensation Recovery Policies

Posted in SEC Enforcement

Nearly five years after the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) was enacted in July 2010, the SEC approved proposed rules required under Section 954 of the Act. Section 954 of the Act added Section 10D to the Securities Exchange Act of 1934 (the “Exchange Act”), which directs the SEC to… Read More

Conflicts of Interest: When You’re Having Too Much Fun at That Business Lunch

Posted in Fund Regulation, Investment Adviser Regulation, SEC Enforcement

Jay Baris, an editor of the BD/IA Regulator, recently published Conflicts of Interest: When You’re Having Too Much Fun at That Business Lunch in the Learning Curve column of the August 2015 issue of Fund Directions. In this issue, Jay discusses the challenging new hurdles fund directors face to comply with the 1940 Act’s gifts… Read More

BDC Master Feeder Funds on the Horizon – No-Action Relief Granted to One Issuer

Posted in Enforcement, SEC Enforcement

The staff of the SEC’s Division of Investment Management said that it would not recommend enforcement action if a business development company (BDC) reorganizes into a master-feeder structure.  The relief will also be available to future Feeder Funds in the same structure.  Other BDCs that wish to utilize a master-feeder structure, however, may not rely… Read More

SEC Staff Provides Guidance to Clarify Application of Rule Requiring Reporting of Personal Securities Transactions by Investment Adviser Personnel

Posted in Investment Adviser Regulation, SEC Enforcement

In a June 2015 Guidance Update, the staff of the Division of Investment Management clarified how the code of ethics reporting rules apply to investment advisers. Current rules require certain advisory personnel who have access to non-public information regarding securities transactions to report their personal securities transactions to their firms, so that advisers and SEC… Read More

A First: The SEC Lodges Broker-Dealer Registration Charges Against Sellers of Investments Through the EB-5 Program

Posted in Broker-Dealer Regulation, SEC Enforcement

For the first time, the SEC brought a settled administrative proceeding against sellers of investments through the federal EB-5 Immigrant Investor Program for failure to register as broker-dealers.  Previous SEC actions related to the EB-5 program alleged fraudulent conduct in the sales of investments. The EB-5 program is administered by the U.S. Citizenship and Immigration… Read More

Pay-to-Play Rule─Practical Considerations for Investment Advisers

Posted in Enforcement, Investment Adviser Regulation, SEC Enforcement

Kelley A. Howes, an editor of the BD/IA Regulator, recently published Pay-to-Play Rule─Practical Considerations for Investment Advisers in the May/June 2015 issue of the Journal of Taxation and Regulation of Financial Institutions. In addition to discussing the SEC’s first case against an investment adviser for violations of Rule 206(4)-5 (the “Pay-to-Play Rule”) under the Investment Advisers… Read More

Administrative Proceedings vs. Federal Court: The SEC Provides Limited Transparency Into Its Choice of Forum

Posted in Broker-Dealer Regulation, SEC Enforcement

For the past two years, the SEC has come under heavy fire, both inside and outside the Commission, for its increasing use of its own administrative proceedings, rather than federal courts, as the preferred forum for bringing its enforcement actions. On May 6, the Wall Street Journal published an article entitled “SEC Wins With In-House… Read More

OCIE Targets Never-Before-Examined Investment Companies for Compliance Exams

Posted in Fund Regulation, Investment Adviser Regulation, SEC Enforcement

The SEC’s Office of Compliance Inspections and Examinations in a Risk Alert dated April 20, 2015, announced a program targeting investment companies that have never been examined for focused, risk-based compliance examinations.  OCIE’s “Never-Before Examined Investment Company” (NBE IC) Initiative, which is part of OCIE’s National Examination Program, will focus on higher-risk areas of concern… Read More

Firm Sanctioned for Breach of Fiduciary Duty and Violation of the Compliance Rule

Posted in Investment Adviser Regulation, SEC Enforcement

The SEC sanctioned a registered investment adviser for breaching its fiduciary duty by failing to disclose to its clients a conflict of interest created by a portfolio manager’s outside business activity and personal investments.  The SEC found that the firm violated, among other things, Rule 206(4)-7 under the Advisers Act, which requires registered investment advisers… Read More

No-Action Relief Granted for Three-Tier Fund Structure

Posted in Fund Regulation, SEC Enforcement

The SEC’s Division of Investment Management on April 3, 2015, said that it will not recommend enforcement proceedings against an investment adviser that structures a three-tier fund allowing certain funds to invest in a “Central Fund” established to create operational efficiencies. Under the proposed structure, the investment adviser will establish a fund of funds that… Read More

SEC Annual Conference Highlights 2014 Accomplishments and Promises to Turn Up the Heat in 2015

Posted in Enforcement, SEC Enforcement

With Chair Mary Jo White in her second year at the helm, the Securities and Exchange Commission showcased its efforts, improvements, and enforcement successes at this year’s SEC Speaks Conference. The Commission highlighted that it brought a record number of cases—755 enforcement actions—in fiscal year 2014, and obtained $4.1 billion in monetary relief. The Commission… Read More