Performance Advertising for Investment Advisers

February 22, 2012

Although not specifically prohibited, investment advisers should be cautious when using performance data in advertising as the securities regulator may claim that the performance advertisement contains untrue statements of a material fact or is otherwise false or misleading. The U.S. Securities and Exchange Commission (“SEC”) has explained that advertisements shall be considered false or misleading depending on the facts and circumstances involved in its use, including:

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Correction on Form U5 Leads to SEC Action for Improper Performance Claims

February 15, 2012

The United States Securities and Exchange Commission (“SEC”) recently issued an order instituting cease-and-desist proceedings against an investment adviser representative for misstating performance numbers on performance reports distributed to clients.  According to the SEC’s order, the representative overstated client performance numbers and understated losses on individual portfolio performance reports provide to his clients.  The investment adviser representative is now barred from associating with another investment adviser firm and required to pay a civil penalty of $60,000.

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Compliance and Ethics Are Not Solely the Responsibility of an Investment Adviser’s CCO

February 08, 2012

On January 31, 2012, the U.S. Securities and Exchange Commission (“SEC”) held a Compliance Outreach Program National Seminar in Washington, D.C. for investment advisers and investment companies. In the past, these seminars were generally referred to as “CCO Outreach Programs.” During the introductory remarks for the seminar, Carlo V. di Florio, Director, Office of Compliance Inspections and Examinations for the SEC, explained the reason for the changed program title. Mr. di Florio indicated that the change is based on the SEC’s desire through both its outreach programs and its examination program to “elevate the role of compliance by underscoring that it is not a responsibility that stops at the desk of the CCO” and that the SEC’s intention is to continue its outreach and support for investment adviser’s chief compliance officers (“CCO”).

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The Code of Ethics Rule

February 07, 2012

Under Rule 204A-1 (“Code of Ethics Rule”) of the Investment Advisers Act of 1940 (“Investment Advisers Act”), each investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”) is required to adopt and implement a code of ethics that sets forth required standards of conduct for all supervised persons of the registered investment adviser and addresses conflicts that arise from personal trading by advisory personnel. Most state securities regulators have similar requirements.

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An Investment Advisers Code of Ethics Should Reinforce its Fiduciary Duty

January 25, 2012

In August 2004, the U.S. Securities and Exchange Commission (“SEC”) adopted Rule 204A-1 under the Investment Advisers Act of 1940 (“Investment Advisers Act”) that required registered investment advisers to adopt codes of ethics.  Under SEC Rule 204A-1, an investment advisory firm must adopt and implement a code of ethics, establishing rules and conduct all supervised persons must adhere to as a fiduciary. SEC Rule 204A-1 was adopted in attempt to create a standard of conduct that would “prevent fraud by reinforcing fiduciary principles that must govern the conduct of advisory firms and their personnel.” Section 206 of the Investment Advisers Act imposes a fiduciary duty on investment advisers by making it unlawful for an investment adviser to engage in fraudulent, deceptive or manipulative conduct. In its role as a fiduciary, an investment adviser has a duty to serve the best interest of its clients; a duty to have a reasonable, independent basis for investment advice; a duty to ensure that its investment advice is suitable to the client’s objectives, needs and circumstances; and a duty to be loyal to client.

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Final Renewal Statements Now Available in the IARD/Web CRD System

January 10, 2012

Final Renewal Statements for registered investment advisors are now available in the IARD/Web CRD system. These statements will reflect the final registration statuses of the investment advisor firm and its representatives as of December 31, 2011. Final Renewal Statements will reflect that the investment advisor is  “Paid In Full,” has an “Amount Due,” or “Failed to Renew.”

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SEC Modifies Standard for Accredited Investors

January 04, 2012

The U.S. Securities and Exchange Commission (“SEC”) has modified the rules used to determine whether an individual is qualified to invest in certain unregistered securities offerings.  The amendments were adopted as part of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”).

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