February & March SEC Updates

  1. SEC to perform examinations that focus on compliance with Form CRS: https://www.sec.gov/files/Risk%20Alert%20-%20Form%20CRS%20Exams.pdf
  2. Investment adviser made material misrepresentations and omissions of material fact necessary to make the statements made not misleading in order to induce prospective investors to invest in private funds. https://www.sec.gov/litigation/admin/2020/ia-5471.pdf
  3. OCIE remains fully operational nationwide. Examinations to be performed offsite. https://www.sec.gov/ocie/announcement/ocie-statement-operations-health-safety-investor-protection-and-continued
  4. SEC Coronavirus (COVID-19) Response.  Investment advisers business continuity plans are being reviewed: https://www.sec.gov/sec-coronavirus-covid-19-response
  5. Co-heads of the SEC’s enforcement staff issue public statement on insider trading concerns. Companies to be mindful of their established disclosure controls and procedures, insider trading prohibitions, codes of ethics, and Regulation FD and selective disclosure prohibitions: https://www.sec.gov/news/public-statement/statement-enforcement-co-directors-market-integrity
  6. Jay Clayton issues public statement that Form CRS will not be delayed: https://www.sec.gov/news/public-statement/statement-clayton-investors-rbi-form-crs
  7. Westport Capital Markets, LLC, and its owner, Christopher E. McClure, defrauded their advisory clients by repeatedly purchasing securities that generated significant undisclosed compensation, enriching themselves at their clients’ expense:  https://www.sec.gov/news/press-release/2020-65
  8. The SEC obtained an asset freeze and other emergency relief against Florida-based investment adviser Kinetic Investment Group LLC and its managing member, Michael Scott Williams, in connection with an alleged fraudulent, unregistered securities offering that raised approximately $39 million from at least 30 investors.  https://www.sec.gov/news/press-release/2020-56
  9. Actor Steven Seagal charged with unlawfully touting digital asset offering: https://www.sec.gov/news/press-release/2020-42 and https://www.sec.gov/litigation/admin/2020/33-10760.pdf
  10. Investment adviser operated a fraudulent investment advisory scheme in which he falsely represented he actively managed client funds to generate 2-3% guaranteed monthly returns, he would receive 25% of the profits and maintained a large cash reserve, his trading strategy was risk-free and clients would not lose money, clients could withdraw their money at any time and their funds were secure, he sent clients account statements showing profitable trading when no profits existed, he used client funds to pay himself and his personal expenses, and he used fabricated brokerage statements inflating the amount of money the adviser claimed in its brokerage account, and otherwise engaged in a variety of conduct which operated as a fraud and deceit on clients.  https://www.sec.gov/litigation/admin/2020/ia-5462.pdf
  11. Exempt-reporting adviser neglected to disclose certain conflicts of interest and neglected to take measures required by the operating documents.  https://www.sec.gov/litigation/admin/2020/ia-5461.pdf
  12. Investment adviser misused and misappropriated money from its private funds. https://www.sec.gov/litigation/admin/2020/ia-5458.pdf
  13. Enforcement action involves conflicts of interest that were not adequately disclosed to advisory clients.  https://www.sec.gov/litigation/admin/2020/ia-5453.pdf
  14. Improper Commission registration and failure to disclose a conflict of interest.
  15. The investment adviser registered with the Commission as an investment adviser based on the premise that it would reach $100 million in regulatory assets under management (“RAUM”) within 120 days and therefore be eligible to remain registered.  As the 120-day mark approached, the firm reported had no more than $10 million in RAUM.  Nonetheless, firm remained improperly registered for months.  https://www.sec.gov/litigation/admin/2020/ia-5452.pdf
  16. Exempt reporting investment adviser (which later registered as an investment adviser) effected interfund cross trades between two private funds.  These trades were made on a principal basis because a principal’s ownership stake in the private fund involved in each of these trades was more than 35% during the relevant time period.  The firm failed to disclose in writing that it engaged in these principal transactions and did not obtain client consent before the completion of each of the transactions as required under Section 206(3) of the Advisers Act.  The firm also failed to implement written policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder, a violation of Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder.   https://www.sec.gov/litigation/admin/2020/ia-5448.pdf
  17. Investment adviser failed to establish, maintain, and enforce written policies and procedures reasonably designed, taking into consideration the nature of its business, to prevent the misuse of material nonpublic information.  Specifically, the firm failed to follow its written policies and procedures by not maintaining a list of securities that members, officers, and employees and their family household members were prohibited from trading after the firm came into possession of potential material nonpublic information.  Additionally, the firm’s written policies and procedures related to the handling of material nonpublic information were not reasonably designed to prevent misuse of material nonpublic information because they did not address any business-specific risks and lacked any guidance regarding when trading in securities should be restricted.  https://www.sec.gov/litigation/admin/2020/ia-5441.pdf