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The weekly news source for investment management legal and compliance professionals

Topic: Enforcement

Private Fund Adviser Settles Hidden Compensation Allegations with SEC

October 11, 2019
Failure to disclose compensation is one of those violations almost guaranteed to draw an SEC enforcement action. The agency sees a large part of its mission as protecting investors, so when it suspects that an advisory firm has not been upfront in disclosing what and how it will get paid from clients, expect them to dig deep into that firm until satisfied it unearthed the full story.

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SEC Cracks Down on Improper Proxy Voting

October 11, 2019
Now that it has adopted guidance on advisory firm proxy voting responsibilities, it appears that the SEC is showing some teeth. In two recent enforcement actions, it reached settlements with advisory firms that voted proxies for their clients after explicitly stating that they would do no such thing.

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16 More Advisers Avoid Civil Money Penalties under SEC’s Share Class Initiative

October 4, 2019
As if the 79 settlements announced in March were not enough, the SEC on September 30 announced settlements with 16 more advisory firms that self-reported share class violations. While all had to collectively pay almost $10 million in disgorgement and prejudgment interest, they were able to avoid paying civil money penalties. Meanwhile, a 17th adviser – one that did not self-report share class violations - settled with the agency and paid a $300,000 fine.

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Failure to Supervise Cherry-Picking Rep Leads to Twin Enforcement Actions

September 27, 2019
Advisory firms take note: An errant individual account representative that gets in trouble with the SEC for cherry-picking may drag his advisory firm into the enforcement process – if the agency believes that the adviser did not properly supervise the employee. The SEC on recently reached separate settlements with an adviser and its IAR in just such a matter.

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Private Fund Investment Managers Subject to Share Class Violations

September 20, 2019
Mutual fund managers are not the only advisers subject to allegations that they placed clients in more expensive share classes when lower-priced share classes for the same investments were available. An adviser making private fund investments found this out the hard way earlier this month when it settled charges that it failed to disclose conflicts of interest related to its receipt of compensation in return for placing clients in alternative investments.

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Adviser in Court over Allegations It Failed to Disclose Investment Terms and Owner’s Profits

September 13, 2019
An adviser and his companies are facing charges in federal court from the SEC that they deceived eight clients to invest more than $3 million without disclosing a conflict of interest that allegedly led them to lose approximately $640,000 in principal, as well as untold amounts of lost interest.

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SEC Alleges Adviser Engaged in Share Class Violations and Other Conflicts of Interest

September 6, 2019
The SEC’s focus on advisers placing clients in certain higher-fee mutual fund share classes when less expensive share classes of the same investment are available shows no sign of abating – as evidenced by the agency’s August 29 complaint in federal court charging a dually registered adviser with doing just that.

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‘Incubator Fees’ Land Private Fund Adviser in Court

August 23, 2019
One of the SEC’s perennial targets is advisers charging excessive fees – and then failing to disclose those fees to its clients or funds. In a complaint this month in federal court, the SEC charged an advisory firm to private venture capital funds and its owner with doing both.

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Adviser Settles Allegations of Conflicts of Interest and Acting as an Unregistered Broker

August 16, 2019
Two hot buttons for the SEC are conflicts of interest and advisers or broker-dealers acting without proper registration. Advisers would be wise to take a lesson from a new agency settlement that revolves around both of these issues.

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Advisers Paid by More than One Party in a Deal are Likely to Draw SEC Attention

August 16, 2019
Word to the wise: When in a deal, represent just one of the players. Advisers representing more than one party in a transaction may think they have a sweet arrangement, but it is more likely they catch the eye of the SEC Division of Enforcement. It’s not worth it.

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Insider Trading Settlement Notes Destruction of Evidence by Branch Manager

August 9, 2019
Trading in a company’s stock and options based on material non-public information obtained from a friend who worked at that company will doubtless draw the attention of SEC enforcers. Destruction of subpoenaed evidence is likely to only add to investigators’ fervor and increase settlement penalties – as one branch manager at a duly registered adviser/broker-dealer found out.

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SEC Takes Adviser to Court over Share Class and Revenue Sharing Conflicts

August 9, 2019
The SEC this month charged a large Massachusetts-based advisory firm with conflicts of interest over its alleged failure to disclose to clients ways in which it benefitted at their expense. The enforcement action is an example of the agency cracking down on both share class violations and improper revenue sharing.

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SEC and CFTC Settle Mispricing Charges with Hedge Fund Portfolio Manager

August 2, 2019
Regulators take improper valuation and mispricing seriously, particularly when the party accused of doing so also allegedly tried to hide his actions. An advisory firm and commodity pool operator portfolio manager found this out the hard way after reaching settlements with both the SEC and the CFTC that together left him almost $850,000 poorer and barred from both the securities industry and futures trading for at least three years.

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Failure to Disclose Conflicts of Interest Lands Firm Founder in Hot Water

July 26, 2019
The founder and owner of an advisory firm that failed to disclose material conflicts of interest about investments he advocated has now experienced the cost of his alleged malfeasance. In a settlement this month with the SEC, he was barred from the securities industry for life and agreed to pay, together with his firm, more than $1.2 million in disgorgement and fines.

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Clayton Backs Simultaneous Resolution of Settlement Offers and Waiver Requests

July 12, 2019
Advisers and their attorneys face a problem when the SEC acts on a settlement offer but holds off on granting related waiver requests – leaving them in the position of having to decide whether to accept a settlement without knowing whether needed waivers are forthcoming. Those facing agency enforcement will likely be happy to know that SEC Chairman Jay Clayton this month came down on the side of simultaneous resolution of both.

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Adviser Waives New ALJ Hearing Despite Lucia Ruling, Settles Charges

May 31, 2019
An advisory firm and its founder, despite an Appeals Court ordering a rehearing with a different administrative law judge of a previous ALJ decision, on May 16 settled charges with the agency that it engaged in fraudulent trade allocations and misused soft dollars. The firm owner was permanently barred from the securities industry and agreed to pay disgorgement of $669,965.

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Peirce Calls for ‘Reasonableness’ in SEC Regulation and Enforcement

May 17, 2019
SEC Commissioner Hester Peirce wants the SEC to be more reasonable in how it regulates and enforces, arguing that two recent developments – the agency’s Share Class Disclosure Initiative and the Supreme Court’s Lorenzo decision – give her concern.

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Conflict of Interest, Due Diligence and Disclosure Questions Draw SEC Attention

May 3, 2019
The SEC’s Division of Enforcement always has its eye out for advisers that may run afoul of its highest priorities, including conflicts of interest and failure to disclose. When it finds firms with these violations, expect the agency to investigate and, when these investigations bear fruit, possibly take enforcement action.

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Proprietary Algorithms May Promise Profits But Bring the SEC

April 26, 2019
Advisory firms offering clients and investors big profits through the use of homegrown, supposedly surefire algorithms had better think twice. It is unlikely that any scientific formula can beat the market or regularly prevent losses – and advisers that use algorithms to lure investors and keep existing clients may find they get neither profits nor loss prevention, but instead find themselves facing SEC enforcement and fines.

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Individual Adviser Representatives Not Immune from SEC Prosecution

April 19, 2019
The SEC’s Division of Enforcement may choose not to take action against an advisory firm, but that doesn’t mean they won’t take action against an investment adviser representative (IAR) working for that firm – a lesson that one IAR just learned.

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