See why ACA Insight is the leading newsletter on regulatory compliance. Sign up for a free 1-week trial.

The weekly news source for investment management legal and compliance professionals

Topic: Enforcement

SEC Settles Cherry-Picking Allegations with Yet Another Adviser

November 17, 2017
The SECís cherry-picking campaign against advisory firms shows no sign of abating. As with its crackdowns on Rule 105 and share-class abuse, the agency is going full throttle against advisers and key employees that misallocate key trading results to themselves or favored clients, leaving other clients with the dregs. A California-based firm and a former executive there are the latest to feel the campaignís sting

Read More

SEC Brought Fewer Enforcement Actions in 2017, But . . .

November 17, 2017
Advisers and their attorneys may take some solace from the SEC reporting that fiscal year 2017 saw the agency bring 754 enforcement actions, compared with 868 the year before, but it is far too soon and there are too many facts tied to individual cases to draw any conclusions. Nonetheless, the FY 2017 figures mark the first time the enforcement case total has declined for several years, having risen each year since at least FY 2013, when 676 enforcement actions were brought.

Read More

SEC Turning Away from ‘Broken Windows’ Enforcement

November 3, 2017
It looks like the SEC plans to break fewer windows under chairman Jay Clayton than it did under former chair Mary Jo White. Whatís more, there may be less emphasis on seeking admissions of wrongdoing when settling cases. The co-director of the agencyís Division of Enforcement reportedly made both these points in a panel discussion at a recent securities conference.

Read More

SEC Settles with Valuation Firm in Latest Example of Gatekeeper Scrutiny

October 20, 2017
The SEC under former chair Mary Jo White stated quite clearly that it would take enforcement action not only against advisers and funds, but also against those it termed "gatekeepers:" attorneys, accountants, consultants and others. The agencyís recent settlement with a firm providing valuation services shows that scrutiny is alive and well under chair Jay Clayton.

Read More

Advisers: Beware of Loans Provided by Friendly Broker-Dealers

October 20, 2017
Three settlements issued on the same day concerning the same alleged violation: accepting loans with favorable terms from broker-dealers in exchange for sending business to those same broker-dealers. Sounds like the SEC is sending a message.

Read More

Failure to Provide Counsel with Key Information Likely Won’t Pass SEC Muster

October 13, 2017
When seeking legal advice, advisers should provide all relevant material facts to the attorney. Failure to do so may result in a legal opinion that wonít stand up to SEC scrutiny.

Read More

Jury Rules Against F-Squared Founder in Federal Court

October 13, 2017
The SEC came out the winner on October 6, when a federal jury ruled against advisory firm F-Squared Investments founder and former CEO Howard Present in a case the agency brought almost two years ago in federal district court.

Read More

OIG to SEC: Improve Information Security, Regulatory Oversight, Contract Management

October 13, 2017
When it rains, it pours. A little more than two weeks after the SEC began dealing with the public fallout from the cyber breach of one of its key electronic systems, its Office of the Inspector General issued its annual statement on the agencyís management and performance challenges. While the statement identified some progress the SEC made in addressing these challenges, it found significant areas for improvement.

Read More

Settlement Shines New Light on Old Practice of Scalping

October 6, 2017
With ever-more sophisticated securities transactions seemingly becoming the norm, the SEC increasingly relies on its own high-tech abilities to identify fraud. Elaborate new ways of investing and transacting should not, however, distract compliance departments from monitoring their firms for some of the most basic kinds of fraud. The practice known as "scalping" is a case in point.

Read More

Platinum Settlement Lesson: Disclose Before Allocating Broken Deal Expenses

October 6, 2017
Private equity fund advisers would be wise to take note of the SECís recent settlement with Beverly Hills-based Platinum Equity Advisors. The large advisory firm, with approximately $13.4 billion in assets under management, paid more than $3.4 million to settle charges that it allocated undisclosed broken deal expenses to three of its private equity fund clients.

Read More

12b-1 Fees: SEC Settles Share Class Charges with Two More Advisers

September 29, 2017
If you think the SEC only occasionally charges advisers for placing clients in expensive share classes when less expensive classes are available, recent events should change your mind. The agency reached settlements with two advisory firms involving share classes just last month, and those followed up on still other settlements and developments earlier this year and the year before.

Read More

Examiners and Enforcement Division Keep an Eye on the Fees and Expenses Ball

September 22, 2017
Fees and expenses, and how advisers allocate them, constitute much of what compliance is about. While some compliance officers may consider fee and expense allocation among the most basic of compliance practices, they should avoid the trap of thinking they have it covered, when in fact, they may not. Nor should they be lulled into believing that agency examiners and investigators donít look for such violations, when, in fact, they do. This may be particularly true with private fund advisers.

Read More

Advisers Relying on Research Must Take Steps to Prevent Insider Trading

September 15, 2017
Advisory firms that use extensive research before making investment decisions need to put policies and procedures in place to ensure that those investments are not based on material, nonpublic information. Itís the kind of thing the SEC keeps an eye out for, as one large hedge fund adviser recently discovered.

Read More

Failure to Disclose Reserve Funds and Related Fees May Lead to Enforcement

September 15, 2017
Reserve funds are sometimes created and used by advisory firms to "smooth" investor earnings or to ensure redemption requests can be met. Advisers that do so must disclose such a fundís existence, ensure that fee policies are disclosed and avoid conflicts of interest. Failure to do so may lead to problems with examiners and agency enforcement.

Read More

Inadequate Disclosure of Fee Calculations May Lead to Fee Returns

September 7, 2017
Advisers writing fund offering materials and operative documents must take care when disclosing how they calculate fees and expenses. A wrong word or phrase Ė writing "average" instead of "aggregate," for instance Ė is all it might take for the SEC to state that a disclosure is inadequate and that clients must be refunded a great deal of money.

Read More

Fund Managers Should Disclose Before Using One Fund to Prop Up Another

August 25, 2017
Recipe for a conflict of interest: An adviser managing two funds causes one fund to invest in the second Ė but fails to disclose the investment to the investors of the first fund. The fund receiving the investments uses them to finance and help grow the advisory firm.

Read More

Hedge Fund Manager Ordered to Pay $13 Million in Investor Fraud Case

August 25, 2017
Donít promise what you canít deliver, donít overvalue investments and donít take from Peter to pay Paul. Those seem to be the main lessons drawn from a federal courtís judgment against a hedge fund manager that the SEC has litigated against for the past seven years.

Read More

Private Fund Adviser and Owner/CCO Settle Multiple Charges with SEC

August 18, 2017
The SEC is long past the day of being unfamiliar with private fund advisers. It knows what to look for when it investigates and isnít shy about enforcement actions. When it finds a situation where the owner of the advisory firm is also the chief compliance officer, donít be surprised if it makes an example of the case.

Read More

Revenue Sharing in Exchange for Investments May Be a Conflict

August 11, 2017
Perception counts. Consider a third-party broker-dealer offering an adviser compensation in exchange for investing client dollars in certain mutual funds available on the brokerís platform. The SEC is likely to perceive that compensation as a conflict of interest. Itís not so much whether the adviser follows through and makes those favored investments Ė itís that the financial incentive to make them exists.

Read More

PF Managers of Buyer and Seller Real Estate Funds Must Do Right by Both

August 4, 2017
Private fund advisers specializing in real estate transactions need to beware. Steer clear of conflicts of interest when selling property from one client fund to another. Disclosure must be your watchword and favoritism cannot be shown to either fund, regardless of your firmís percentage of ownership in each.

Read More