The U.S. Securities and Exchange Commission (“SEC”) recently brought an enforcement action against an investment adviser’s former portfolio manager of a closed-end investment company for allegedly failing to disclose a conflict of interest caused by the portfolio manager’s efforts to help his daughter’s acting career.
According to the SEC’s order, while the closed-end investment company invested $85 million in a lending facility for a movie distributor to pay printing and advertising expenses with certain films, the investment company’s portfolio manager allegedly requested the distributer help his daughter’s career as an actress. On occasions, the movie distributer supposedly presented the daughter with potential opportunities in the film industry. An executive of the movie distributor was eventually able to procure, as explained by the SEC, a limited acting role for the portfolio manager’s daughter.
The SEC asserts that the portfolio manager failed to disclose this conflict of interest to the investment company’s board of directors nor did he contact the investment adviser’s legal or compliance staff for guidance about such conflict. The investment adviser eventually learned about the portfolio manager’s conflict of interest involving his daughter and the movie distributor and terminated its affiliation with the portfolio manager, according to the SEC.
Without admitting or denying the SEC’s findings, the portfolio manager consented to the SEC’s cease-and-desist order which found the portfolio manager violated Section 206(2) of the Investment Advisers Act of 1940, censured the portfolio manager and ordered the portfolio manager pay a civil money penalty of $250,000 to the SEC.
- SEC Issues Cease and Desist Order Against Dual BD/RIA for Revenue Sharing on Money Market Cash Sweep– August 24, 2020
- SEC Issues Cease-and-Desist Action for Failure to Disclose Conflicts of Interest – July 10, 2019
- SEC Enforcement Action: Investment Adviser Fails to Disclose Affiliate Broker-Dealer Conflicts of Interest– March 14, 2017
- Conflicts of Interest – Checklist
- Conflicts of Interest – Fixed Indexed Annuities – Best Practices
- Non-Licensed Owner – Checklist of Compliance Issues
- Conflicts of Interest – Cash Sweep Program Checklist
- Conflicts of Interest – Financial Planning – Recommending Products with Varying Commissions
- Outside Business Activity – Investigation Checklist
- Conflicts of Interest – Log
- Suitability – Recommending Proprietary Investment or Fund
The information contained in this blog post is general in nature intended for educational purposes only and is not intended to be a comprehensive analysis of this topic. RIA Compliance Consultants, Inc. has not verified the accuracy of the securities regulator’s order and is not offering any opinion whether the allegations made by the securities regulator in the administrative proceeding referenced above are accurate. This post is not intended to constitute compliance consulting advice or apply to any particular investment adviser firm’s specific situation. Please consult the applicable securities regulator’s rules and published guidance for more details about the topics referenced above. For more information about the limitations of this blog post and information on our website, please see our Disclosures webpage.