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The weekly news source for investment management legal and compliance professionals

Topic: Fund Disclosure

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.

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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.

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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.

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SEC Issues FAQs to Guide Investment Companies Through Reporting Changes

July 28, 2017
Weíre halfway through 2017 and some eyes are already on changes that 2018 will bring. An example in point is the SECís Division of Investment Management, which this month issued guidance in the form of FAQs to help investment companies and their managers meet the new reporting requirements that begin next year.

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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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Warning: Avoid Mixing Client and Adviser Money in the Same Illiquid Assets

September 8, 2016
Itís a recipe for conflict of interest: An advisory firm with an equity stake in certain illiquid assets adds client dollars to those assets Ė and fails to disclose to the clients that it is doing so. Sound unlikely? Charges alleging just that were leveled against a Salt Lake City-based adviser and two of its executives.

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New OCIE Target: Adviser Share Class Recommendations

July 15, 2016
The SECís Office of Compliance Inspections and Examinations has found its next target: Advisers that receive compensation or financial incentives for recommending mutual fund and 529 Plan share classes with substantial loads or distribution fees. OCIE wants to know whether such arrangements involve conflicts of interest, are properly disclosed, and are covered by an advisory firmís written compliance policies and procedures.

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New Guidance Calls for Disclosure of Risks from Changing Market Conditions

March 18, 2016
The SEC is relentless in seeking that funds and the advisers that manage them disclose risks to investors. It has done so for risks involving a fundís principal investments; the volatility, leverage, liquidity and other risks that come with investments in derivatives; and even the risks posed by fund names that may be perceived as suggesting safety and protection from loss. Now it wants updated disclosures of risks caused by changing market conditions.

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Investment Strategy Changes: Don’t Get Burned by Failing to Disclose

March 4, 2016
Many advisers will re-evaluate and change their investment strategies over the course of a clientís life. Itís part of making sure that clients get the best returns. What a shame, then, when some of those advisers cause new problems for themselves and for their clients by failing to disclose those changes.

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White Justifies SEC Push to Go Beyond Disclosure

February 26, 2016
SEC chair Mary Jo White last week laid out her case for agency actions that take the SEC beyond its traditional role of requiring disclosure to one of requiring more substantive steps, among them the recently proposed rules on derivatives and liquidity management. Advisers should take note: Itís not your grandparentsí SEC anymore.

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Broken Deal Expense Allocations: A Question of Disclosure

February 19, 2016
The key for private equity and other funds allocating broken deal expenses is that they explicitly disclose in the fundís governing documents just how those expenses will be allocated. Failure to provide such disclosure is a red flag likely to draw SEC attention.

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Multiple Disclosure Issues Lead to Enforcement Against Hedge Fund Manager

February 5, 2016
Disclosure is a basic requirement of most SEC regulations. If you want a visit by the SEC, failure to disclose, particularly when it occurs more than once, is one of the best ways to ensure that you get one.

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Failure to Disclose Change in Investment Strategy Likely to Draw SEC Ire

November 20, 2015
Firms that plan to change a fundís investment strategy would be wise to let their clients know before, rather than after, they execute the change. Those that donít may not only face unhappy investors, but the wrath of the SEC.

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Private Equity + Conflict of Interest + Failure to Disclose = SEC Enforcement

November 13, 2015
Hereís a recipe sure to draw the SECís attention, direct from the Division of Enforcementís cookbook: Take one private equity firm, add a tablespoon of conflict of interest, mix, and then bake. When done, divide among selected colleagues and enjoy the finished product in private. Be sure not to share the recipe with clients, investors or board members. Warning: This recipe may prove significantly more expensive than expected, and you may not be doing much more baking after agency charges lead to a costly settlement.

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Proposed Liquidity Management Rules Would Change How Mutual Funds Work

September 25, 2015
The SECís proposed set of liquidity risk management rules for mutual funds and exchange-traded funds are likely, if adopted as written, to make major changes in how those funds, and the advisers who manage them, do business.

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Accurate Small Print Disclosures Will Not Make Up for Misrepresentations

August 28, 2015
"Itís in the written materials" is not an adequate defense for firms whose representatives otherwise misinform clients about the risk level of investments. Advisers need to review all representations, written and oral, to ensure that they provide accurate and consistent disclosure. Two Citigroup affiliates learned this lesson on August 17, after they agreed to pay almost $180 million in disgorgement and interest to settle SEC charges that they defrauded investors in two hedge funds.

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Master the Keys to Successful PPMs and Subscription Documents

July 24, 2015
A fundís private placement memorandum and accompanying subscription documents are the window through which both investors and regulators view a fund and an adviserís management of it. Take the time to get them right Ė youíll find itís time well spent.

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New Guidance Clarifies Personal Securities Transactions Reporting

July 10, 2015
Better go back and check the arrangements your employees have with the managers of their trusts and third-party discretionary accounts. If access persons in your firm arenít reporting their personal securities holdings and transactions for these accounts, they may need to start.

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Fees and Expenses: What Examiners Want to Know

June 18, 2015
Do what you say, and say what you do. Securities regulations have been described as a disclosure regime. As long as a firm discloses to clients what it plans to do with their investments Ė and does so in a way that will be read and understood by a reasonable person Ė the firm in many instances can rest easy that it is not breaking its fiduciary duty to those clients.

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OCIE Turns Its Attention to Never-Before-Examined Investment Companies

May 1, 2015
Mutual funds, open-end funds and other investment companies that have never been examined should start getting a bit nervous: Examiners may be coming.

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