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

Adviser Settles Solicitor Rule Charges with SEC Following Two Examinations

Advisory firms that rely on a no-action letter to support their business practices should make sure that their interpretation of that letter is correct – especially when those business practices are ones the SEC pays particular attention to, like compliance with Rule 206(4)-3, the Solicitor Rule. An advisory firm that relied on such a letter despite concerns raised by examiners recently learned this lesson.
Continue Reading

Inspector General Challenges SEC Exam Coverage and Investigation Timeliness

The SEC must sometimes regard its Office of the Inspector General as a relentless cop, always on its tail to find either things it is not doing right or challenges it must meet – perhaps not unlike some advisers and broker-dealers may feel about the SEC itself. Just weeks after issuing a report critical of the agency’s time management controls, the SEC’s internal watchdog has now raised, among other things, its examination coverage of investment advisers and the timeliness of its enforcement investigations.
Continue Reading

Recent Stories

SEC Cracks Down on Improper Proxy Voting

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.
Continue Reading

SEC Staff to Fund Managers: Verify Accuracy of Performance and Fee Disclosures

The SEC’s Division of Investment Management is apparently not happy with mutual fund disclosures of their performance and fees. In new guidance issued October 7, the Division staff lists a number of improper practices that it has observed and says that funds and fund managers need to verify the accuracy of their performance and fee disclosures prior to filing them with the Commission and providing them to investors.
Continue Reading

Private Fund Adviser Settles Hidden Compensation Allegations with SEC

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.
Continue Reading

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

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.
Continue Reading

Full Commission Testifies on SEC Strategy, Enforcement, Investments and More

In a development not seen in a dozen years, the full Commission – SEC Chairman Jay Clayton and the four agency commissioners – recently testified before a House of Representative committee on the wide range of the SEC’s plans, actions and concerns. As part of their testimony, as well as in answers to questions from committee members, they touched on the agency’s strategic plan, enforcement actions including examinations, market developments and risks, some specific rules and more.
Continue Reading

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

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.
Continue Reading

Association Wants Pay-to-Play Rule Tailored for Small Advisers, Less Complex

The SEC is considering revising Rule 206(4)-5, the Pay-to-Play Rule, in the near future – and the Investment Adviser Association is ready with suggestions. In a recent comment letter to the agency, the IAA urged the Commission to consider a number of steps, including changing the definition of what constitutes a small business or organization, tailoring the Rule for small advisers, and making it less complex.
Continue Reading

Private Fund Investment Managers Subject to Share Class Violations

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.
Continue Reading

SEC Sets Markers and Penalties for CAT Completion

SEC Chairman Jay Clayton has put the CAT on a leash. While actual cats are well known to avoid such attempts to control their behavior, perhaps it will be different with the Consolidated Audit Trail (CAT), a much-ballyhooed but delayed project that, once completed, would capture, in a consolidated data source, customer and order information for orders in national market system securities, across all markets, from the time of order inception through routing, cancellations, modifications and/or execution.
Continue Reading