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.
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”)
SEC3 Welcomes Seasoned Chief Compliance Officer, Mark Gilbert, as Senior Compliance Consultant
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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
Regulatory Roundup for August 2024
This month’s big news from the SEC was more piggy-bank breaking fines against 26 broker-dealers, investment advisers and dual registrants for “widespread and longstanding failures” for using unapproved electronic communications methods, known as “off-channel communications.” The SEC’s Marketing Rule (Advisers Act 206(4)-1) enforcement continued with a settlement involving an investment adviser for using hypothetical performance on its public website. Next, in a case undoubtedly meant to serve as a warning for advisers after Minnesota Governor Tim Walz was added to the Democratic presidential ticket, the SEC fined an adviser $95,000 for a $7,150 campaign contribution made in violation of the “look back” provision under the Pay-to-Play Rule (Advisers Act Rule 206(4)-5). New rule making activity was less dramatic as the SEC adopted a final rule increasing the dollar threshold for defining a “qualifying venture capital fund” under the Investment Company Act of 1940 from $10 million to $12 million.
How Much Testing Is Enough?
Most compliance officers struggle to determine whether they are conducting enough testing to satisfy their obligations under the Advisers Act. In its release adopting Advisers
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Call us today at (212) 706-4029 x 229, or shoot us an email at info@SEC3compliance.com so we can set up a time for one of our consultants to discuss your needs and how we can help.
