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The weekly news source for investment management legal and compliance professionals

Topic: Litigation/Court Cases

Adviser in Court after SEC Charges Owner and Firm with Improper Transaction Costs

October 18, 2019
The owner of both an advisory firm and a broker-dealer found himself in federal court after the SEC filed charges that he and his advisory firm invested their clients in a version of a security that charged significant transactional sales charges – most of which the broker-dealer allegedly pocketed – when the identical security was available without these costs.

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Eight Attorneys General Take SEC to Court over Regulation Best Interest

September 20, 2019
It was perhaps inevitable, given the divisions over the SEC’s adoption of Regulation Best Interest. Eight attorneys general, representing seven states and the District of Columbia, this month filed suit in federal court, asking, among other things, that the Rule be tossed.

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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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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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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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Clayton Addresses Recent Court Rulings and the Path Forward

June 28, 2019
The SEC has been buffeted by several court decisions in recent years – Kokesh in 2017, Lucia in 2018, Robare and Lorenzo this year. At least two of these had a negative impact on how the agency’s Division of Enforcement operates, while one can be seen as enhancing the Division’s enforcement authority. SEC Chairman Jay Clayton, in a recent speech, described his thoughts about these decisions and how the SEC intends to move forward.

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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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Insider Trading: Judge’s ‘Level Playing Field’ Comment Draws Attention

April 26, 2019
A federal district court judge this month said that anyone thinking the stock market is a level playing field "obviously has no contact with reality." That statement drew attention, with some believing that it may make it somewhat more difficult for prosecutors to convince juries that insider trading occurred.

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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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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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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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The SEC Strikes Back: EDGAR Hacking Suspects Found and Charged

January 18, 2019
Nine suspects – hackers, traders and other entities from multiple countries – were charged by the SEC January 15 in federal court with perpetrating the 2016 hack of the agency’s online Electronic Data Gathering, Analysis and Retrieval (EDGAR) system, including some of its personally identifiable information.

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Ruling Against SEC in ICO Case May Upset Agency’s Cryptocurrency Strategy

December 7, 2018
The question of whether a digital token constitutes a security may have been put into play by a federal judge’s ruling in an ongoing case involving the SEC and a company engaged in a digital coin offering (ICO). The judge turned down the agency’s request for a preliminary injunction against the company, saying that the SEC had not sufficiently proved that the digital tokens involved met the definition of a security.

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SEC Targets Short-and-Distort Schemes to Drive Down a Company’s Share Price

October 12, 2018
It’s one thing for an adviser to express an opinion about a company that it plans to invest in. It’s another to use false statements in an attempt to drive down a company’s share price. The SEC recently filed a complaint in federal court that a hedge fund adviser did just that.

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Federal Court Dismisses Challenge to SEC Disgorgement Authority

September 7, 2018
Following the June 2017 Supreme Court Kokesh settlement that subjected SEC disgorgement orders to a five-year statute of limitations, it was perhaps inevitable that there would be legal challenges to the agency’s authority to order disgorgement at all as part of an administrative settlement. Late last month a federal district court judge rejected such a challenge.

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