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Tag Archives: Investment Company Act

SEC Charges Alt Fund Adviser with Custody Violations

Posted in Investment Adviser Regulation, SEC Enforcement

The Securities and Exchange Commission on February 12, 2015, entered findings against an investment adviser to several alternative mutual funds for maintaining $247 million in cash collateral at broker-dealer counterparties instead of the fund’s custodial bank.  The SEC staff discovered the alleged violations during a routine examination.  Without agreeing with or denying the charges, the… Read More

SEC: Non-Transparent ETFs Not Ready for Prime Time

Posted in Fund Regulation

The SEC has given a preliminary thumbs-down to non-transparent exchange traded funds (ETFs).  In two separate notices issued on October 21, 2014, (found here and here), the Commission stated that applications to allow actively managed ETFs to withhold daily disclosure of portfolio holdings did not “meet the standard for exemptive relief” under Section 6(c) of… 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

No-Action Relief Allows Business Development Companies to Hold Shares of Affiliated Advisers

Posted in Fund Regulation, Investment Adviser Regulation

In two recent no-action letters, the SEC staff expanded the ability of business development companies (BDCs) to invest in registered investment advisers.  Although Section 12(d)(3) of the Investment Company Act of 1940 generally prohibits a registered investment company – including a closed end fund that elects to be treated as a BDC – from acquiring… Read More

SEC Sanctions Investment Adviser for Pushing Class A Shares When Investors Qualified to Buy Institutional Class Shares

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

The Securities and Exchange Commission sanctioned an investment adviser and its owner for failing to seek best execution and breaching their fiduciary duty in selecting mutual fund share classes for three advisory clients. This case is one of several arising out of the staff’s investigation into governance and disclosure practices related to a “turnkey” mutual… Read More

ETF Mergers Possible Under Rule 17a-8

Posted in Fund Regulation

Can two affiliated ETFs merge in reliance on Rule 17a-8 under the Investment Company Act despite representations they made to obtain exemptive relief from the Commission?  That’s the question addressed in a recent Guidance Update from the Division of Investment Management. Among the standard representations required by the SEC to grant exemptive relief necessary to… Read More

Court Tosses ETF Securities Lending Fee Case

Posted in Fund Regulation, Private Litigation

A federal district court in Tennessee dismissed a case brought by two union pension funds claiming that securities lending fees paid by an ETF to its adviser’s affiliate violated  the adviser’s fiduciary duty under Section 36(b) of the Investment Company Act of 1940 (“1940 Act”). The defendants argued that the SEC issued an order exempting… Read More

Giving the CCO Teeth: SEC Sanctions Portfolio Manager for Misleading CCO

Posted in Investment Adviser Regulation, SEC Enforcement

The SEC brought its first action for misleading and obstructing the work of a CCO this week, finding that a portfolio manager deliberately altered documents and misled the firm’s CCO in an attempt to hide violations of the adviser’s code of ethics. Rule 17j-1(d) under the Investment Company Act requires that employees of an adviser… Read More