1. On March 28, 2024, the SEC’s Division of Examinations published a Risk Alert regarding the shortening of the securities transaction settlement cycle from two business days after the trade date to one business day after the trade date (“T+1”). This is also the compliance date for new rules related to the processing of institutional trades by broker-dealers and certain clearing agencies, as well as certain recordkeeping amendments applicable to registered investment advisers.
2. On March 27, 2024, the SEC adopted amendments to the rule permitting certain internet investment advisers to register with the Commission (the “internet adviser exemption”). The amendments will require an investment adviser relying on the internet adviser exemption to have at all times an operational interactive website through which the adviser provides digital investment advisory services on an ongoing basis to more than one client. The amendments will also eliminate the current rule’s de minimis exception by requiring an internet investment adviser to provide advice to all of its clients exclusively through an operational interactive website and to make certain corresponding changes to Form ADV. https://www.sec.gov/news/press-release/2024-42
3. On March 18, 2024, the SEC announced final judgment against Advisor Resource Council (“ARC”), a registered investment adviser. ARC made false and misleading statements in its SEC Form ADV Part 2A, including by misrepresenting that its allocation procedures would be fair and equitable. ARC also failed to adopt policies and procedures designed to prevent cherry-picking and failed to maintain certain required books and records. ARC was ordered to pay a civil money penalty in the amount of $300,000. https://www.sec.gov/litigation/litreleases/lr-25953
4. On March 18, 2024, the SEC charged Global Predictions Inc., a registered investment adviser. Global Predictions made false and misleading claims about its use of artificial intelligence (“AI”), its status as the “first regulated AI financial advisor,” and the services that it offered. Global Predictions failed to disclose material conflicts of interest resulting from its relationships with certain individuals giving testimonials, and advertised hypothetical performance on its public website without adopting and implementing the policies and procedures relating to its marketing activities. Global Predictions also failed to provide advance notice of certain material changes to its advisory contract — the terms of that contract permitted Global Predictions to change its terms unilaterally without advance notice to clients. Global Predictions included liability disclaimer language, commonly referred to as a hedge clause, in its advisory contract with clients, which created the misleading impression that clients had waived non-waivable causes of action against Global Predictions provided by state or federal law, and made false and misleading disclosures to clients regarding its advisory services. Global Predictions was ordered to pay a civil money penalty in the amount of $175,000. https://www.sec.gov/files/litigation/admin/2024/ia-6574.pdf
5. On March 18, 2024, the SEC charged Delphia, a former registered investment adviser. Delphia made false and misleading statements about their purported use of artificial intelligence in its SEC filings. Delphia represented that it used artificial intelligence and machine learning to analyze its retail clients’ spending and social media data to inform its investment advice when, in fact, no such data was being used in its investment process. After an examination, Delphia agreed to correct the false and misleading statements and to take steps to ensure that no such statements were made in the future. While certain corrective efforts were made, additional false and misleading statements concerning the use of its retail clients’ data in the investment process continued to be made. Delphia was ordered to pay a civil money penalty in the amount of $225,000. https://www.sec.gov/files/litigation/admin/2024/ia-6573.pdf
6. On March 12, 2024, the SEC instituted administrative proceedings against Geluk Capital Management Ltd. (“GCM”) and Douglas Fathers. Geluk Capital and Fathers represented to investors and prospective investors that the Geluk Global Fund Limited SAC (“Geluk Fund”) had its own proprietary trading strategy and risk controls that had resulted in a multi-year track record of positive performance. Geluk Fund had none of these things and was instead sending investor money to a third-party manager. Geluk Capital and Fathers charged the Geluk Fund fees in a manner that was inconsistent with fund governing documents. Both the offering documents and the investment management agreement between GCM and the Geluk Fund stated that GCM was entitled to a 20% performance fee net of fund expenses. Specifically, the Geluk Fund agreed to pay a “Performance Fee . . . equal to twenty percent (20%) of the annual appreciation in the Net Asset Value.” The Net Asset Value (“NAV”) was defined as “the value of the portfolio securities and other assets of the Fund, less liabilities and accruals for Fund fees and expenses.” Contrary to these representations, GCM and Fathers calculated the performance fee using the gross monthly appreciation of Geluk Fund assets, not the Geluk Fund’s NAV. Geluk Capital and Fathers was ordered pay disgorgement in the amount of $29,081, prejudgment interest of $3,607 and a civil money penalty in the amount of $60,000 civil money penalty, for a total of $92,688. https://www.sec.gov/files/litigation/admin/2024/34-99720.pdf
7. On March 6, 2024, the SEC instituted administrative proceedings against 3D/L Capital Management, LLC (“3D/L”), a registered investment adviser. 3D/L failed to fully and fairly disclose material facts and conflicts of interest relating to its agreements with an investment manager for certain exchange traded funds (the “ETF Manager”). 3D/L offers to its clients the opportunity to invest in proprietary model portfolios comprised of investments in ETFs and other securities. The ETF Manager agreed to pay 3D/L an “onboarding fee” in exchange for 3D/L making the ETF Manager’s funds available for potential use in the model portfolios. 3D/L did not charge any other manager an “onboarding fee” in order for their investment products to be considered for the model portfolios. 3D/L became the sub-adviser to a fund managed by the ETF Manager. Under the sub advisory agreement, the ETF Manager agreed to pay 3D/L a sub-advisory fee that was based on net revenues earned from the fund. Both of these agreements created conflicts of interest because they created an incentive for 3D/L to use funds managed by the ETF Manager in 3D/L’s model portfolios. 3D/L did not fully and fairly disclose the “onboarding fee” and the related conflicts of interest and did not fully and fairly disclose terms of the sub-advisory agreement and the related conflicts of interest. 3D/L was ordered to pay disgorgement, prejudgment interest, and a civil penalty, totaling $285,607. https://www.sec.gov/files/litigation/admin/2024/ia-6568.pdf
8. On March 4, 2024, the SEC instituted administrative proceedings against Louis Goff who was associated Wells Fargo, a dually registered broker-dealer and investment adviser. Goff was a principal and founder of Edger Solutions, LLC (“Edger”) and Edger Solutions Management, LLC (“Edger Management”). Goff functioned as Edger’s administrator and compliance officer. Goff made false statements about investors’ account values; profitability of their Edger accounts; current and historical account returns; Goff’s experience and qualifications; and his personal management of over $750 million in client funds. Goff failed to disclose to investors in Edger that their funds were transferred to bank and foreign currency trading accounts controlled by Phoenix Outsourced Development, LLC, which was operated by a securities law recidivist. Goff reviewed and approved Edger’s Private Placement Memorandum, and monthly performance reports for investors, both of which contained material misrepresentations and omissions. Goff failed to disclose to investors in Edger that all trading on behalf of Edger was done by a securities fraud recidivist and convicted felon. Goff was barred. https://www.sec.gov/files/litigation/admin/2024/34-99659.pdf
9. On March 1, 2024, the SEC instituted administrative proceedings against Aryeh Goldstein, the sole owner and Managing Member of Adar Bays, LLC and Adar Alef, LLC. Goldstein acted as an unregistered securities dealer by engaging in convertible debt deals with distressed penny stock companies and then converting the debt and selling discounted shares acquired in that manner into the market. Goldstein and the defendant entities he controlled, Adar Bays and Adar Alef , engaged in the business of lending money to distressed penny stock companies in exchange for discounted shares of the companies’ stock and then selling those discounted shares to investors on the public securities markets. Defendants sold a large number of discounted shares to investors at market price and generated millions in profits. Goldstein was barred. https://www.sec.gov/files/litigation/admin/2024/34-99656.pdf 10. On March 1, 2024, the SEC instituted administrative proceedings against HG Vora Capital Management, LLC, a registered investment adviser. HG Vora beneficially owned 5.6% of the outstanding common stock of issuer Ryder System, Inc. (“Ryder”). HG Vora disclosed this 5.6% beneficial ownership position in a Schedule 13G that it filed. HG Vora purchased an additional 2,050,000 shares of Ryder common stock, giving it total beneficial ownership of 5,050,000 shares, or 9.9% of the outstanding shares. HG Vora held its Ryder common stock with the intent to change or influence control of the issuer. HG Vora failed to file the required Schedule 13D disclosing its “control” purpose, current shareholdings, and other specified information within ten days. HG Vora did not file the required schedule the same day that it submitted to Ryder, and publicly announced, a proposal to acquire all Ryder shares not already held by HG Vora, at a 20% premium to the prior day’s closing trading price. HG Vora was ordered to pay a civil money penalty in the amount of $950,000. https://www.sec.gov/files/litigation/admin/2024/34-99651.pdf