On June 4, 2018 the SEC (Securities and Exchange Commission) issued a press release announcing the imposition of an $8 million civil penalty against an investment adviser in New York for failing to disclose conflicts of interest to its clients. The SEC also announced the filing of a litigated action against two investment adviser representatives of the firm for misleading clients and concealing material conflicts of interest. The investment adviser neglected to disclose agreements with product and service providers that led to the investment adviser receiving undisclosed compensation. The Director of the SEC’s New York Regional Office said, “Investment advisers have an obligation to disclose direct and indirect financial incentives to clients.” Click here to read the SEC’s press release.
Category Archives: SEC
On April 12, 2018, the Office of Compliance Inspections and Examinations (“OCIE”) of U.S. Securities and Exchange Commission (“SEC”) released a Risk Alert, “Overview of the Most Frequent Advisory Fee and Expense Compliance Issues Identified in Examinations of Investment Advisers.” The risk alert provides a list of compliance issues frequently identified in OCIE examination deficiency letters relating to fees and expenses charged by SEC registered investment advisers. Click here to read the SEC’s Risk Alert.
Cherry Picking – SEC Cease-and-Desist Proceeding
March 28, 2018
In March 2018 the U.S. Securities and Exchange Commission (SEC) instituted an administrative cease-and-desist proceeding against an investment adviser firm in response to an alleged fraudulent “cherry-picking” scheme. The SEC asserts that from 2012-2015 the investment adviser firm disproportionately allocated profitable trades to a personal account, while disproportionately allocating unprofitable trades to client accounts. The firm, which had approximately $7.5-$9 million in assets under management, was fined $48,000 by its state securities regulator for failure to enforce its own supervisory procedures concerning trade allocation. Specifically, the state regulator found the investment adviser firm did not always pre-allocate block trades and did not retain a record of how block trades were pre-allocated. Click here to read the SEC’s full action.
SEC Compliance Outreach Program – Date Set for National Seminar
February 14, 2018
The U.S. Securities and Exchange Commission (SEC) recently announced that its Compliance Outreach Program National Seminar for investment adviser firms will be held on Thursday, April 12, 2018 in Washington, DC. This SEC event is designed to help chief compliance officer make improvements to his or her investment adviser firm’s compliance program. For an employee of an SEC registered investment adviser firm to attend in person, he or she can register online at https://regandsurvey.sec.gov/NoviSurvey/TakeSurveyPage.aspx?s=be9d4ac36e2c40e19efaef0ce7079d06&tsid=8ff8c4079869425ea960fd3130c3cdff&c=en-US . Additionally, the seminar will be broadcast live via the Internet which can be accessed at sec.gov .
On August 7, 2017, the Office of Compliance Inspections and Examinations (“OCIE”) of U.S. Securities and Exchange Commission (“SEC”) released a Risk Alert which details its examination of the cybersecurity preparedness of 75 broker-dealers, investment advisers and investment companies in the U.S. In comparison to prior cybersecurity examinations, this exam involved more active testing and validation of the firms’ procedures and controls related to cybersecurity. Click here to read the Risk Alert.
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.
Inadvertent Custody – SEC Guidance Update
March 07, 2017
In February 2017, the Division of Investment Management of the U.S. Securities and Exchange Commission (“SEC”) issued a Guidance Update “Inadvertent Custody: Advisory Contract Versus Custodial Contract Authority.” In this Guidance Update, the SEC explained that an investment adviser may have custody of client funds or securities because of provisions in a custodial agreement entered into by the investment advisory client and a qualified custodian.
SEC Guidance: Robo-Advisers and the Investment Advisers Act of 1940
February 27, 2017
The U.S. Securities and Exchange Commission (“SEC”) recently issued new guidance for investment adviser firms and individual investors considering the use of robo-advisers. Robo-advisers are becoming increasingly popular among investment adviser firms and clients alike, due to their ability to provide targeted investment advice for a lower investment advisory fee, which increases the accessibility of professional investment advice for frugal investors or investors whose account balances may not meet an investment adviser firm’s required minimum account balance. Robo-advisers are not suitable for every client, however, leading the SEC to issue guidance for investment adviser firms seeking to utilize this new technology.
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.
A former investment adviser firm and its principal recently settled claims by the U.S. Securities and Exchange Commission (SEC), admitting that the investment adviser firm principal cherry picked profitable trades for a select number of favored friends, clients, and family members of the firm’s principal.
