On April 7, 2020, the Office of Compliance Inspections and Examinations (OCIE) issued two risk alerts: Examinations will focus on compliance with regulation Best Interest and examinations that focus on compliance with Form CRS. https://www.sec.gov/news/press-release/2020-82
On April 17, 2020, an investment adviser settled charges that it advised its clients to purchase or hold mutual fund share classes that charged 12b-1 fees when lower-cost share classes of those same funds were available to those clients. Certain of the adviser’s associated persons, as registered representatives of an unaffiliated BD/IA, received 12b-1 fees that they would not have collected had those clients been invested in the available lower-cost share classes. https://www.sec.gov/litigation/admin/2020/ia-5477.pdf
On April 17, 2020, a private fund investment adviser settled charges that it omitted information regarding the “character” of investments and thereby rendered the marketing materials misleading. https://www.sec.gov/litigation/admin/2020/ia-5478.pdf
On April 17, 2020, Merrill Lynch settled charges that it purchased, recommended, or held for advisory clients mutual fund share classes that charged 12b-1 fees instead of lower-cost share classes of the same funds for which the clients were eligible. Merrill Lynch received 12b-1 fees in connection with these investments. Respondent failed to disclose in its Form ADV or otherwise the conflicts of interest related to (a) its receipt of 12b-1 fees, and/or (b) its selection of mutual fund share classes that pay such fees. During the relevant period, Merrill Lynch received 12b-1 fees for advising clients to invest in or hold such mutual fund share classes. https://www.sec.gov/litigation/admin/2020/ia-5479.pdf
On April 17, 2020, an investment adviser settled charges that it purchased, recommended, or held for advisory clients mutual fund share classes that charged 12b-1 fees instead of lower-cost share classes of the same funds for which the clients were eligible. Respondent’s affiliated broker received 12b-1 fees in connection with these investments. Respondent failed to disclose in its Form ADV or otherwise the conflicts of interest related to (a) its affiliated broker’s receipt of 12b-1 fees, and/or (b) Respondent’s selection of mutual fund share classes that pay such fees. https://www.sec.gov/litigation/admin/2020/ia-5480.pdf
On April 22, 2020, a private equity adviser settled charges that it charged the portfolio companies of a private fund it managed for the services of its in-house operations group without fully disclosing this practice and the related conflicts in the fund’s operating documents or otherwise. In particular, when raising investments for its second private equity fund, the adviser emphasized the value added and role played by its operations group in generating investment returns, but failed to provide full and fair disclosure that it would separately charge the fund’s portfolio companies for those services or that it would have associated conflicts of interests. The Order found that the adviser did not provide full and fair disclosure to the limited partners of the private fund that it would charge the portfolio companies for these services, and it failed to obtain consent to the associated conflicts of interest. https://www.sec.gov/litigation/admin/2020/ia-5485.pdf
On April 27, the Division of Investment Management posted a question and answer on its Coronavirus (COVID-19) Response FAQs web page which provides guidance for investment advisers applying for loans under the U.S. Small Business Administration’s Paycheck Protection Program (the “PPP”). According to the Division’s response, an investment adviser’s fiduciary obligation to disclose material facts related to its advisory relationship with clients may require the adviser to disclose that it applied for a PPP loan, even if the adviser’s application was denied. https://www.sec.gov/investment/covid-19-response-faq
On April 28, 2020, a mutual fund investment adviser settled charges that it caused overvaluation of certain odd lot positions in securities held by its mutual fund that primarily invests in residential mortgage backed securities. In addition, the investment adviser should have disclosed that its valuation practices for odd lot positions in bonds were a material contributor to fund’s reported performance, and thereby omitted important information from certain statements to investors that attributed the fund’s reported performance to investments rising toward fundamental values. Finally, the adviser failed to adopt policies and procedures that were reasonably designed to address the fund’s public disclosures concerning the attribution of fund’s reported performance. https://www.sec.gov/litigation/admin/2020/ia-5489.pdf
On April 30, 2020, a private fund investment adviser settled charges that it misused over $1 million of private fund assets. The CEO submitted fraudulent expense reports and received approximately $44,000 in excessive reimbursements that the adviser charged to a private fund it advised. In addition, the CEO breached his fiduciary duty when he borrowed $1 million in cash from the fund for five days to settle a personal trade. https://www.sec.gov/litigation/admin/2020/ia-5490.pdf
On April 30, 2020, a private fund adviser settled charges that its acts were inconsistent with disclosures regarding investment concentration and risk controls as they pertained to their management of a private fund. https://www.sec.gov/litigation/admin/2020/ia-5491.pdf
On May 6, 2020, the SEC settled charges against registered broker-dealer Bloomberg Tradebook LLC for making material misrepresentations and omitting material facts about how the firm handled certain customer trade orders. https://www.sec.gov/news/press-release/2020-104