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The weekly news source for investment management legal and compliance professionals

Topic: Enforcement

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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Monitor Disclosures – Even When They Come from the Top

April 12, 2019
Chief compliance officers should make every effort to review disclosures from their firms to the SEC, investors and others, even if those disclosures already have the blessing of top management. Failure to do so may leave the door open to potential fraud.

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SEC’s Enforcement Powers Likely Widened by Lorenzo Ruling

April 12, 2019
The SEC, battered by Supreme Court rulings in recent months that made it change how it appoints administrative law judges and placed a time limit on disgorgement, scored a big win with the high court’s recent Opinion in the Lorenzo v. Securities and Exchange Commission case. Under the ruling, the SEC, as well as private parties, will likely be able to bring fraud charges in more cases and assess more sanctions.

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SEC Charges Former Advisory Firm COO Overbilled to Give Himself a Raise

April 5, 2019
Don’t steal from your clients and don’t steal from your employer. These seem like fairly easy rules to understand and follow – but the SEC and the U.S. Attorney’s Office for the Southern District of New York, in separate enforcement actions on March 28, charged a former advisory COO with doing both.

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Digital Assets: SEC Provides Framework for Determining When They May be Securities

April 5, 2019
The SEC’s approach to the use of cryptocurrencies to date has to a large degree focused on whether those digital assets are securities. Now, in its latest step to regulate this growing segment of the market, the agency has issued a "framework" to help those working with digital assets determine if those assets may, in fact, be securities.

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Keep Fiduciary Duty and Conflicts of Interest in Mind During Transactions

March 22, 2019
It sounds like the classic conflict of interest: An advisory firm manages both the seller and multiple prospective buyers in a real estate asset transaction. How can such an adviser possibly get the best possible deal for its clients on both sides?

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Senate Bill Would Allow SEC to Seek Restitution Going Back 10 Years

March 22, 2019
A bipartisan bill introduced in the U.S. Senate March 14 would go at least part of the way toward redressing the Supreme Court judgment that limited disgorgement to a five-year statute of limitations. The bill would provide the SEC with the authority to seek restitution for investors harmed by fraudsters – and allow the agency to go back 10 years in pursuing such actions.

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SEC Alleges Adviser Ignored Compliance Responsibilities, Falsely Identified CCOs

March 15, 2019
Compliance and chief compliance officers are not just for show. Advisers that name CCOs but then fail to give them responsibility for administering their firm’s written compliance policies and procedures may be called out by the agency for doing just that – as one advisory firm found out.

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Multiple Adviser Settlements Demonstrate Clout of SEC’s Share Class Initiative

March 15, 2019
The SEC knocked it out of the park this month, demonstrating to naysayers that its Share Class Selection Disclosure Initiative has been effective in appealing to advisory firms. The agency on March 11 announced settlements with 79 different advisory firms that chose to self-report their violations. While these firms collectively agreed to pay more than $125 million in disgorgement and interest, they also escaped having to pay civil money penalties.

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Court Decision Removes Threat to SEC Pursuit of Cryptocurrencies

February 22, 2019
A federal district court judge has reconsidered a previous ruling and granted a preliminary injunction against a digital token company. In doing so, he also removed a potential threat to a key SEC tactic in the agency’s enforcement actions against cryptocurrency operators.

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Fraud Charges Demonstrate that Actions Must Match Disclosures

February 8, 2019
Telling investors one thing and then doing another is often a recipe for trouble. This may have been particularly true for one advisory firm that the SEC charged January 26 with promising some investors that portions of their profits would be used to protect their investments but instead were used to pay the living expenses of the firm’s owner.

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Advertising: SEC’s Pursuit of Back-Tested Performance Nets another Settlement

February 1, 2019
Any adviser considering the use of back-tested performance in its advertising would be wise to think twice. The SEC, which has made no secret in recent years of its concerns about this practice, may well look further into firms that employ it, as one advisory firm recently discovered.

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Determine Auditor’s Custody Rule Savvy before Engagement

February 1, 2019
The Custody Rule can be a major headache for advisory firms and their legal counsel. It is complicated, open to interpretation, and the SEC is on the lookout for advisers – and accounting firms – that violate it. All the more reason, for both advisers and auditors to be knowledgeable and experienced about the Rule before taking steps that may violate its requirements.

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Advisers Need to Stay on Top of Client Allocations and Valuations

January 23, 2019
Advisory firms that allocate expenses to clients contrary to written agreements should be prepared to face the possibility of an SEC investigation and enforcement action. That possiblity is magnified if the same firm is found to have improperly conducted reviews of client valuation models.

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Cato Institute Challenges SEC’s Use of Settlement Gag Orders

January 18, 2019
The Cato Institute, the well-known libertarian think tank, took aim at the SEC this month. It filed a complaint against the Commission in federal court, challenging the SEC’s use of the gag order that prevents settlement respondents from denying the allegations in their settlements or telling their side of the story.

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SEC Share Class Crackdown Continues and Shows No Sign of Abating

January 11, 2019
The SEC in late December settled charges against three advisory firms involving their alleged placement of clients in mutual fund share classes that assessed certain fees when less expensive share classes of the same funds were available. These settlements, as well as the inclusion of this practice in the agency’s 2019 examination priorities list, make clear that advisers, mutual funds and their legal representatives should not expect any let-up in these enforcement actions in the near future.

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SEC Takes First Robo-Adviser Enforcement Actions

January 4, 2019
It was only a matter of time until it happened. With the SEC focusing its enforcement guns on cryptocurrencies and cybersecurity, advisory firms’ use of robo-advisers couldn’t have been far behind. The agency primed the pump with guidance on the subject in early 2017, but really showed that it meant business late last month, when it brought its first two enforcement actions against advisory firms involving the use of robo-advisers.

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The Year Ahead: New and Revised Rules, Cryptocurrency and Cybersecurity Enforcement

January 4, 2019
Advisory firms, investment companies and broker-dealers should get ready for some changes as 2019 takes off. Among other things, they will be likely to deal with new rules, revisions to existing rules, and enforcement efforts targeted at reining in cryptocurrencies and strengthening cybersecurity.

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2018 in Review: Standards of Care, Cryptocurrencies, SEC Changes and More

December 21, 2018
With the past year almost over and a new one about to begin, it’s time to take a look back and take stock of what was accomplished in 2018 and what issues remain. The past 12 months found major developments involving standards of care for advisers and broker-dealers, the emergence of an SEC strategy regarding cryptocurrencies, a full year in office for a new SEC team and philosophy, the rising challenges of cybersecurity, and more.

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Advisers Must Follow Through on Promised Advisory Fee Discounts

December 14, 2018
It may sound like an obvious point to make: If an advisory firm promises clients that they will receive fee discounts at certain “breakpoints” based on the amount of assets they turn over to the adviser for management, it must follow through and provide those discounts. However, if an advisory firm fails to implement procedures to make good on these promises, it may find itself both shortchanging clients and facing SEC sanctions.

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