SEC Announces Five More Settlements From Marketing Rule Sweep
Advisers can’t claim they haven’t been warned. Since its effective date in November 2022, the SEC has let firms know that it would be closely monitoring compliance with the new Advisers Act Marketing Rule (Rule 206(4)-1). The Division of Examinations (EXAMS) has issued two risk alerts, Examinations Focused on the New Investment Adviser Marketing Rule and Examinations Focused on Additional Areas of the Adviser Marketing Rule, along with the announcement of settlements with nine advisers in September 2023. Most recently, the SEC announced settlements with five more firms, finding that the advisers posted hypothetical performance on their websites “without adopting and implementing policies and procedures reasonably designed to ensure that the hypothetical performance was relevant to the likely financial situation and investment objectives of each advertisement’s intended audience.”
The takeaways from these cases are first, an adviser posting hypothetical performance on its public website is asking for trouble. The overall sentiment is that there is almost no way to satisfy the SEC that such performance would be relevant, and not misleading, to the broad audience potentially reached by a public website. Second, taking action as soon as you are aware of an issue may help decrease the fines and penalties imposed by the SEC. Admittedly, the sanctions imposed in these cases totaled $200,000, which seem relatively small as compared to recent actions against firms for recordkeeping failures. In its announcement, the SEC said that four of the advisers had already begun pulling hypothetical performance off their websites and that is why their penalties were substantially less.
Tips for Updating Your Compliance Program in 2025
In addition to basic blocking and tackling, compliance officers often have the thankless job of performing the annual review of their compliance program required by Advisers Act Rule 206(4)-7. As discussed in our blog post, Write the Best Annual Compliance Program Review Ever!, that review should consider changes to the Advisers Act and applicable regulations, legal proceedings and guidance from regulators, including risk alerts and interpretations. To simplify the task of collecting all of this information, I’ve identified the top regulatory hot buttons to help advisory firms update their compliance programs for 2025. This is not an exhaustive list; instead, it is the highlight reel of SEC focus areas.
Advisers’ Year-End Checklist for 2024
Compliance officers love checklists, so we’ve put together some “to dos” to consider completing before the end of the year. Enjoy! Get out Your Checkbook
Regulatory Roundup for October and November 2024
Things have perked up this month, with EXAMS’ release of its 2025 priorities and publication of a new FAQ on Form PF’s compliance deadlines. The SEC also settled with two advisers on “greenwashing” charges, presumably resulting from EXAMS promise in its 2020 Exam Priorities to review “the accuracy and adequacy of disclosures provided by RIAs offering clients new types or emerging investment strategies, such as strategies focused on sustainable and responsible investing, which incorporate environmental, social, and governance (ESG) criteria.” I also could not resist including two cases from September. The first case includes a textbook example of the issues raised when cross-trading illiquid fixed-income securities. The second case provides a rare example of the SEC pursuing a firm for failing to register because of operational overlap.
September Surprise: SEC Finds Gaps in MNPI Controls for CLO Manager
In the SEC’s burst of settlements at the end of its fiscal year, one case about the potential misuse of material nonpublic inside information (“MNPI”)
Regulatory Roundup for September 2024
FinCEN added to advisers’ compliance burden this month by imposing new anti-money laundering policies and procedures for January 1, 2026. The SEC also ended its fiscal year with more heart attack-inducing fines against 11 broker-dealers, investment advisers and a dual registrant for “widespread and longstanding failures” for using unapproved electronic communications methods, known as “off-channel communications.” In a surprise move, the Commission announced the first settlement where an adviser received no penalty for its record-keeping failures, presumably because of its self-reporting and selflessness by helping the SEC build a case against another firm. The SEC also continued its “broken windows” regulatory approach by announcing settlements with 11 investment managers for failing to file Form 13F and 13H with civil penalties exceeding $3.4 million. We wrap up with a case showing that the SEC has not given up on its assault on private funds, charging a firm with fraud for singling out some of its investors for preferential treatment.
Nine More Advisers Face $1.24 Million Fallout from SEC’s Marketing Rule Sweep
September 30 is the SEC’s fiscal year-end, so it’s no surprise to see an uptick in enforcement cases this month. The latest slew of settlements
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