Category Archives: Enforcement
 

SEC Enforcement Action: Investment Adviser Fails to Disclose Affiliate Broker-Dealer Conflicts of Interest

March 14, 2017

The U.S. Securities and Exchange Commission (“SEC”) issued an enforcement action recently against an investment adviser firm for its alleged failure to disclose fee sharing arrangements that the investment adviser firm entered with its third-party broker dealer. The investment adviser firm consented to the order without admitting or denying the SEC findings, except as specified within the SEC’s Order. Click here to read the full SEC Order Instituting Administrative and Cease-And-Desist Proceedings.

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SEC Enforcement Action – ETFs and Failure to Follow Policies and Procedures

February 15, 2017

The U.S. Securities and Exchange Commission (SEC) issued a press release announcing that an investment adviser, Morgan Stanley Smith Barney, agreed to pay an $8 million penalty to settle charges under the Investment Advisers Act of 1940 relating to single inverse ETF investments it had recommended to investment advisory clients. Click here to for the entire press release and here for the SEC’s order.

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SEC Enforcement Action Alleges Cherry-Picking, Double-Dipping, and Fund Mismanagement

October 25, 2016

The U.S. Securities and Exchange Commission (“SEC”) recently instituted administrative cease-and-desist proceedings against a Washington-based registered investment adviser. The SEC alleges the investment adviser engaged in several schemes meant to defraud clients and unjustly enrich the investment adviser’s personal accounts. Among the alleged wrongdoing was the investment adviser’s scheme to “cherry pick” favorable trades for his personal accounts while allocating unfavorable trades to client accounts. During one relevant period, the SEC claims the investment adviser’s accounts showed a return of 1.39% while the affected client accounts had a -0.78% return. In total, the SEC asserts that the investment advisor profited almost $500,000 while client accounts suffered losses of more than $2 million.

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SEC Penalizes Investment Advisory Firms for Spreading False Performance Claims

September 02, 2016

The U.S. Securities and Exchange Commission (SEC) recently fined thirteen investment adviser firms for promoting performance information for a third party investment product that the SEC alleges the investment adviser firms knew, or should have known, was false. At the heart of the enforcement actions were claims made by a third party money manager who purported to have a time tested investment program that consistently and greatly exceeded standard market returns. The SEC alleged that in fact, the mathematical algorithm underlying the investment program had only been in existence a short period of time and the third party money manager was using selective, back-tested (“hypothetical”) data to promote its new program. Compounding the problem, the investment performance calculations contained an error that further inflated the product’s artificial performance statistics. Despite being notified of the calculation error and knowing the algorithm’s investment performance data was not from actual accounts, the SEC alleged that third party money manager claimed in marketing materials given  to investment adviser firms and investment adviser firm clients that the data was genuine. Click here to read the SEC enforcement action on the third party money manager.

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SEC Continues to Focus on Cybersecurity for Investment Advisers

August 02, 2016

As in 2015, the Securities and Exchange Commission (“SEC”) Examination Priorities for 2016 identify cybersecurity as an area of “potentially heightened [market-wide] risk.” Citing the Office of Compliance Inspections and Examinations (“OCIE”) 2015 Risk Alert, the SEC promised to continue using its exams to evaluate investment adviser firms’ cybersecurity preparedness. Click here to read our blog on the OCIE Cybersecurity Risk Alert.

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SEC Examination Priorities for 2014

February 19, 2014

On January 9, 2014, the Office of Compliance Inspections and Examinations (“OCIE”) National Examination Program (“NEP”) of the U.S. Securities and Exchange Commission (“SEC”) published its examination priorities for 2014. This report is published to “communicate with investors and registrants about areas the that the staff perceives to have heightened risk and to support the [SEC] mission to protect investors; to maintain fair, orderly, and efficient markets; and to facilitate capital formation.”

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Enforcement Actions Related to Advertising / Marketing for Investment Advisors

May 30, 2012

Marketing materials can be very helpful in attracting business for an investment advisor, but investment advisors should be aware of the regulatory requirements that apply to the use of marketing materials. Common issues with investment advisory marketing materials include using marketing materials that include testimonials (which investment advisors are generally prohibited from using); publishing past recommendations (without following the restrictions and disclosure requirements for publishing past recommendations); using language that makes promises or guarantees; and making untrue or misleading statements.

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SEC Enforcement Actions Against Investment Advisors Increased 30% During 2011

November 17, 2011

The U.S. Securities and Exchange Commission (“SEC”) recently announced that during its previous fiscal year, enforcement actions against registered investment advisers increased thirty percent over the 2010 fiscal year.  During the 2011 fiscal year, which ended in September, the SEC filed a total of 146 enforcement actions against investment advisers and investment companies.  For a point of reference, from 2006-2009 the SEC filed on average 82 enforcement actions against registered investment advisers.

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