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Tag Archives: 1940 Act

SEC Proposes to Update Longstanding Investment Adviser Advertising and Solicitation Rules

Posted in Investment Adviser Regulation

The Securities and Exchange Commission (SEC) proposed amendments to both the advertising rule and the cash solicitation rule under the Investment Advisers Act of 1940 (the “Advisers Act”) on November 4, 2019. Neither rule — adopted in 1961 and 1979, respectively — has been amended significantly since it was adopted, although the SEC and its… Read More

SEC Clarifies Investment Adviser Standard of Conduct

Posted in Investment Adviser Regulation

On June 5, 2019, the SEC issued an Interpretive Release designed to “reaffirm, and in some cases clarify, the standard of conduct that investment advisers owe to their clients.” The Interpretive Release highlights existing principles relevant to an adviser’s fiduciary duty; it does not create any new regulation. The Interpretive Release sets forth the SEC’s views… Read More

SEC Announces Settlements Resulting from the Share Class Selection Initiative

Posted in Investment Adviser Regulation, SEC Enforcement

On March 11, 2019, the SEC announced settlements with 79 investment advisers who self-reported violations of the Investment Advisers Act of 1940 (the “Advisers Act”) in connection with the Division of Enforcement’s Share Class Selection Disclosure Initiative (the “Share Class Initiative”). The advisers, collectively, agreed to return more than $125 million in fees and prejudgment interest… Read More

SEC Staff Closes Loophole on BDC Asset Coverage Requirements

Posted in SEC Enforcement

In a Guidance Update published on June 30, 2014 by the SEC’s Division of Investment Management, the staff closed a loophole that allowed business development companies (BDCs) with wholly owned Small Business Investment Company (SBIC) subsidiaries to avoid meeting asset coverage requirements when the SBIC subsidiaries issue debt that is not guaranteed by the Small… Read More

SEC Staff: Measure Percentage Ownership by Fund, not by Complex

Posted in Fund Regulation, Investment Adviser Regulation

In its June 2014 Guidance Update, the SEC’s Division of Investment Management said that series funds are individual investment companies for purposes of compliance with certain investor protections, including the 1940 Act’s restrictions on principal transactions. Section 17(a) of the 1940 Act generally prohibits an “affiliated person” of a mutual fund, or an affiliated person… Read More

NFA Requests Comments on Need for CPO/CTA Capital Requirements

Posted in Fund Regulation, Investment Adviser Regulation

Should the National Futures Association (NFA) impose capital requirements on commodity pool operators (CPOs) and commodity trading advisors (CTAs)? On January 23, 2014, the NFA published a Notice to members seeking public comments on this controversial proposal. The proposal does not appear to exclude advisers of registered investment companies that are required to register as… Read More

Division of Investment Management Closes Loophole for Fund Advisers Providing Interim Services “At Cost”

Posted in Enforcement, Investment Adviser Regulation

The SEC’s Division of Investment Management has closed a potential loophole in the federal securities laws through which some fund advisers may have attempted to squeeze to avoid registration. The loophole involves the definition of an investment adviser.  Section 2(a)(20)(iii) of the Investment Company Act of 1940 excludes from the definition of an investment adviser… Read More

Insider Trading in Mutual Funds: Do Traditional Theories Apply?

Posted in Insider Trading, SEC Enforcement

A federal court of appeals recently held out the possibility that insider trading prohibitions—at least under the classic theory—do not apply to mutual fund redemptions. The U.S. Court of Appeals for the Seventh Circuit recently reversed and remanded a summary judgment granted to the SEC in a case alleging that a mutual fund’s chief compliance… Read More

SEC Slaps Fund Directors for Violating Fair Valuation Responsibilities

Posted in Fund Independent Directors, Fund Regulation, SEC Enforcement

Eight former directors of five mutual funds recently settled SEC charges that they failed to satisfy their fair valuation obligations under the 1940 Act. No monetary penalties were assessed, but the former directors agreed to “cease and desist” from future violations (a relatively easy task, since the funds are no longer in operation). The SEC’s… Read More

Fund Trustees Sanctioned for Inadequate Disclosures and Failure to Follow Compliance Policies

Posted in Enforcement, Fund Independent Directors, SEC Enforcement

The SEC, it seems, is serious when they say that mutual fund trustees are “watchdogs” and “gatekeepers,” and they are prepared to hold board members responsible for acting that way. For the second time in less than six months, the SEC named fund board members in an enforcement action. This time, the focus is on disclosure… Read More

SEC Accuses Fund Directors of Breaching Their Valuation Duties

Posted in Enforcement, Fund Independent Directors, Fund Regulation

The SEC has sued the former members of the board of several closed-end and open-end registered investment companies. In short, the SEC alleges that the directors failed to properly fair value a majority of the funds’ holdings during an eight-month period in 2007. The complaint is fact specific and should provide fund boards with some insight… Read More