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The weekly news source for investment management legal and compliance professionals

Topic: Enforcement

Court Judgments Show SEC Focus on Conflicts of Interest and Fee Disclosure

June 23, 2017
An adviser should not move client dollars into new funds and fail to disclose that they will be charged additional fees. This is especially true when that same adviser created the new fund Ė and collects an additional fee from each client after doing so.

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Latest Cherry-Picking Case Includes Improper Fee, Investment Strategy Charges

June 23, 2017
Itís no secret that the SECís Division of Enforcement is targeting advisers that misallocate trade results to favor themselves, a practice known as cherry-picking. What is also turning up in some of these enforcement actions are additional charges, such as improper fees and deviations from investment limitations.

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Clayton Selection of Co-Directors Shows Enforcement Division in Transition

June 16, 2017
Does SEC chairman Jay Claytonís decision this month to appoint two co-directors mean that the Division will continue to take a tough line on enforcement, or does it mean something else? The answer depends on what those co-directors bring to table, and on whom you ask Ė but there is little doubt that it shows an agency in transition.

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Cooperman Settles Insider Trading Charges for $5 Million and Onsite Monitoring

June 2, 2017
Donít let anyone tell you that the SEC isnít pursuing insider trading cases in the wake of some reversals the agency experienced in the past couple of years. The rules governing such enforcement actions may have tightened, but they continue to be brought. One just resulted in significant penalties against an advisory firm owner and his firm.

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SEC’s Distribution-in-Guise Enforcement Drive Scores Multiple Wins

May 19, 2017
Advisers managing funds that pay for marketing and distribution services would be wise to make sure those payments fall within each fundís 12b-1 plan. The SECís distribution-in-guise crackdown, which resulted in several settlements in recent months, has already netted two in May Ė and the month isnít over yet.

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Trade Allocation Not Consistent with Client Disclosure is Enforcement Red Flag

May 12, 2017
Make sure your trade allocation practices match what you promise in your disclosures. Any deviation between them Ė even if your firm thinks itís fair to the client Ė can land you in hot water with the SEC.

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Misclassified Distribution Agreements May Lead to 12b-1 Consequences

May 12, 2017
Sometimes simple errors can lead to dire consequences. An advisory firm that inadvertently misclassifies distribution and marketing service agreements outside its Rule 12b-1 Plan and then causes its funds to pay for those services, for instance, may well find itself facing an SEC enforcement action.

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Failure to Obtain ETF Exemption May Leave Advisers Paying the Penalty

May 5, 2017
Advisers operating exchange-traded funds better know the rules of the road before moving forward. BlackRock Fund Advisors recently settled with the SEC over allegations that it missed one key requirement Ė and wound up paying a $1.5 million fine.

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Portfolio Manager Charged with Stealing Dollars in Matched-Trades Scheme

April 28, 2017
Chief compliance officers know that high among the advisory firm employees they need to monitor are portfolio managers. After all, they sit at the nexus of the trading action. The SEC, in an April 24 complaint filed against a Massachusetts-based portfolio manager, makes clear just how serious the dangers are.

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SEC and DOJ Scrutinize Advisers Doing Business in Other Countries

April 28, 2017
If your firm invests money overseas and you arenít ensuring its compliance with the Foreign Corrupt Practices Act, start paying attention. Both the SEC and the Department of Justice have stepped up their review of advisory firms with international business interests, looking for evidence of bribes.

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Advisory Firm President Gets Home Detention for Obstructing SEC Investigation

April 28, 2017
Itís not often that an advisory firm executive is sentenced to incarceration, even at home, related to an Advisers Act violation. When that executive is charged with obstructing an SEC investigation, however, it can be a different story, as one former advisory firm president found out.

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SEC Catches a Big Fish in Its 12b-1 Fee Dragnet

April 14, 2017
The SEC shows no sign of letting up in its scrutiny of investment advisory firms that place clients in more expensive share classes when less expensive class shares of the same securities are available. It reached a settlement with a small, financially troubled adviser last month, and early this month settled charges with a large financial institution, Credit Suisse, and one of its investment adviser representatives.

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Valuation: Make Sure Third-Party Pricing Vendors Follow Industry Standards

April 7, 2017
Advisory firms may turn to third-party pricing services to provide valuation expertise that the adviser lacks. Donít let that claim of "expertise" stop you from considering how that third party will performs its job before retaining it, however. Failure to do so may result in more than some unpleasant numbers Ė as one advisory firm found out.

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No Disgorgement or Fines for Adviser in 12b-1 Fee Settlement

April 7, 2017
It was just nine months ago that the SEC issued a risk alert saying it would be looking hard at advisory firms that failed to disclose when placing clients in mutual fund share classes that are more expensive than others Ė and only three weeks later charged an adviser for doing just that. On March 29, however, that firm, in a settlement with the agency, walked away without having to provide disgorgement or pay any fines.

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Another Wrap Fee Adviser Settles with SEC Over Tradeaway Disclosures

March 31, 2017
The SEC isnít letting up in its scrutiny of dually registered advisers/broker-dealers, particularly those offering wrap fee programs that result in clients paying unexpected fees for transactions that are "traded away" to other brokers. It settled two such cases a few months back Ė and on March 13 settled a new one.

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Examine Adviser-Broker Relationships for Conflicts of Interest

March 24, 2017
One hand washes the other, or so the saying goes. Advisers and brokers washing each otherís hands, though, would be wise to make sure they are not really engaging in what the SEC might label a conflict of interest.

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SEC Crackdown on Misleading Marketing Nets Another Adviser

March 17, 2017
Use of hypothetical and/or backtested performance results in marketing is a surefire way to draw attention from SEC staff. A new settlement with an advisory firm should serve as a potent reminder to anyone who may have forgotten.

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Appellate Ruling Increases Chances SEC Use of ALJs Will Go to Supreme Court

March 9, 2017
Not only do the U.S. Courts of Appeals for the 2nd Circuit and the 10th Circuit disagree on the issue of whether SEC use of administrative law judges is constitutional, the 2nd Circuit will now look into a past ruling of its own three-judge panel on the same question in a review scheduled for May 24. Itís increasingly looking like the U.S. Supreme Court will provide the final answer.

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New SEC Already Here as Piwowar and White House Make Changes

March 3, 2017
If youíre looking for changes at the SEC, you donít need to wait for Jay Clayton to be approved by the Senate as the new SEC chair. The agency has already changed in a number of ways. Acting chairman Michael Piwowar recently limited who can initiate enforcement actions, most division directors have left, and the Trump administration plans to place regulatory monitors in federal agencies.

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Share All Risks and Costs with Investors When Selling Securities

February 17, 2017
Sometimes even the big players need to learn a lesson about disclosure. Morgan Stanley Smith Barney and Citigroup Global Markets found this out the hard way when they each settled charges from the SEC that they made false and misleading statements about a foreign exchange trading program they sold to investors.

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