1. On October 31, 2024, the SEC instituted administrative proceedings against J.P. Morgan Investment Management Inc. (“JP Morgan”), a registered investment adviser, for engaging in or caused 65 prohibited principal trades with a combined notional value of approximately $8.2 billion and which included approximately $22,000 in spreads. To conduct these trades, a JP Morgan portfolio manager directed an unaffiliated broker-dealer to buy commercial paper or similar short-term fixed income securities from J.P. Morgan Securities LLC (“JP Morgan Securities”), an affiliate of JP Morgan. JP Morgan then purchased the paper from the broker-dealer on behalf of one of its clients. Fifteen of these trades involved money market funds that were registered investment companies (“RICs”) advised by JP Morgan. JP Morgan failed to adopt and implement adequate policies and procedures to prevent unlawful principal trades by its investment professionals. JP Morgan was ordered to pay a civil money penalty of $1,000,000. https://www.sec.gov/files/litigation/admin/2024/ia-6761.pdf
2. On October 31, 2024, the SEC instituted administrative proceedings against J.P. Morgan Securities LLC, a dually registered investment adviser and broker-dealer, for using misleading disclosures with brokerage customers investing in its “Conduit” products, which pooled customer money and invested in private equity or hedge funds that customers might not be able to access directly. On occasion, the third-party fund in which a Conduit was invested would distribute shares of companies that had recently undertaken an initial public offering (“IPO”) or another liquidity event (referenced herein as “Shares”) to the fund’s limited partners, including the Conduit. Each Conduit appointed J.P. Morgan Private Investments Inc. (“JP Morgan Private”) as administrator to the Conduit. JP Morgan Private, in turn, appointed the Private Equity Distribution Management (“Distribution Management”) team, a part of J.P. Morgan Investment Management Inc. (“JP Morgan IM”), to sell the Shares. J.P. Morgan Private Bank (“Private Bank”) then distributed the cash from the sales to Conduit investors via their brokerage accounts. J.P. Morgan Securities was ordered to pay a civil money penalty of $10,000,000. https://www.sec.gov/files/litigation/admin/2024/33-11324.pdf
3. On October 31, 2024, the SEC instituted administrative proceedings against J.P. Morgan Securities LLC, a dually registered investment adviser and broker-dealer, for failing to fully and fairly disclose the financial incentive of itself and certain of its financial advisors to recommend the PM Program over advisory programs offered by JP Morgan Securities that use third-party managers. JP Morgan Securities also failed to adopt and implement written compliance policies and procedures with the disclosure of conflicts of interest presented by the fee structure of the advisory programs for itself and its financial advisors. J.P. Morgan Securities was ordered to pay a civil money penalty of $45 million. https://www.sec.gov/files/litigation/admin/2024/34-101494.pdf
4. On October 31, 2024, the SEC instituted administrative proceedings against J.P. Morgan Securities LLC, a dually registered investment adviser and broker-dealer. JP Morgan Securities, through its registered representatives, recommended certain mutual fund products (“Clone Mutual Funds”) to its retail brokerage customers when materially less expensive ETF products that offer the same investment portfolio to investors (“Clone ETFs” and, together with Clone Mutual Funds, the “Clone Pairs”) were also available on JP Morgan Securities’ platform for recommendation to these customers. In total, 10,516 JP Morgan Securities retail brokerage customers made 17,494 purchases of the more expensive Clone Mutual Funds. JP Morgan Securities’ actions caused impacted customers to pay higher fees than they would have otherwise paid had they purchased the Clone ETFs instead of the Clone Mutual Funds. Specifically, the impacted JP Morgan Securities retail brokerage customers paid approximately $14.03 million in higher fees and expenses. When recommending the Clone Mutual Funds, JP Morgan Securities and its registered representatives failed to consider the costs associated with the Clone Mutual Funds as opposed to the less expensive Clone ETFs and failed to have a reasonable basis to believe that the recommendations were in the best interest of JP Morgan Securities retail brokerage customers. This matter is being litigated. https://www.sec.gov/files/litigation/admin/2024/34-101493.pdf
5. On October 24, 2024, the SEC instituted administrative proceedings against Raymond DiMuro, a formerly registered investment adviser, for engaging in a cherry-picking scheme by using Your Source’s block trading account to disproportionately allocate profitable stock and option trades to three favored clients and unprofitable trades to his other clients, which resulted in the favored clients receiving $1,007,248 in excess profits as compared to DiMuro’s other clients. The SEC calculated that there was less than a one-in-a-million probability that the favored clients’ and the other clients’ disparate investment returns were due to chance. DiMuro was barred. https://www.sec.gov/files/litigation/admin/2024/ia-6756.pdf
6. On October 24, 2024, the SEC instituted administrative proceedings against Hamlin Advisors, a registered municipal advisor, and its associated person and Managing Director, Michael Braun, for failures to timely and fully disclose material conflicts of interest and related violations by Hamlin Advisors, a registered municipal advisor, and its associated person and Managing Director, Braun, including violations of various Municipal Securities Rulemaking Board (“MSRB”) rules by each Respondent, and related breaches of fiduciary duty by Hamlin Advisors with respect to its disclosure violations. From September 2017 to at least April 2022 (the “Relevant Period”), Hamlin Advisors and Braun provided advice to certain charter schools (directly or indirectly through related borrower entities) (collectively, the “Charter School Clients”) on the issuance of municipal bond offerings totaling over $500 million in aggregate principal amount. In each of these issuances, Hamlin Advisors affiliate, a registered investment adviser (“Hamlin Affiliate”), purchased either all or a substantial portion of the offered bonds. In most instances, Hamlin Affiliate also acted as compensated bondholder representative. This affiliate relationship created a material conflict of interest which was not timely disclosed to the Charter School Clients until several days or sometimes weeks after Hamlin Advisors began advising on the structure, timing, and terms of the particular offerings at issue. Braun provided the advice to the Charter School Clients and was responsible for providing the conflicts disclosure and the agreements for municipal advisory services. When Hamlin Advisors and Braun did disclose that a material conflict of interest existed because of Hamlin Advisors affiliation with Hamlin Affiliate, the disclosure was inadequate because it only disclosed that the firms had certain common ownership and both firms could “receive fees.” It did not disclose that Hamlin Advisors had a financial incentive that was opposed to the interests of the Charter School Clients, due to its affiliation with the Hamlin Affiliate. Further, Hamlin Advisors disclosure was inadequate because it did not adequately describe the nature, implications, and potential consequences of the conflict, and did not disclose how it planned to manage and mitigate the conflict. In addition, in their advisory agreements with the Charter School Clients, Hamlin Advisors and Braun did not accurately describe the scope of Hamlin Advisors municipal advisory services for the deals at issue. Finally, Hamlin Advisors written supervisory procedures were not reasonably designed to achieve compliance with the applicable securities laws and regulations, including the applicable MSRB rules. Hamlin Advisors agreed to pay a civil money penalty of $200,000, and Braun agreed to a civil money penalty of $75,000. https://www.sec.gov/enforcement-litigation/administrative-proceedings/34-101424-s
7. On October 22, 2024, the NASAA issued its 2024 Enforcement Report which reflects the responses of securities regulators in 49 U.S. states and territories during the 2023 fiscal and calendar years, along with summary data from securities regulators in the Canadian provinces. The report highlights enforcement statistics, enforcement cases, and common investment schemes. NASAA’s report indicates that state securities regulators opened 5,155 new investigations into securities law violations in 2023 and continued investigating another 3,613 investigations opened in other years, resulting in a total of 8,768 total active investigations during 2023. Of the new investigations opened in 2023, 343 involved digital assets other than staking and nun-fungible tokens, 205 involved social media fraud, and 144 involved staking. NASAA staff noted that state securities administrators are increasing their attempts to warn the public about social media scams as bad actors are using social media more frequently. The top three violations charged were the offer or sale of securities or investment advice by unlicensed parties, offer or sale of unregistered securities, and securities fraud. NASAA noted that state securities regulators also work to prosecute violations of securities laws and frequently work with local, state, and federal law enforcement agencies. The criminal prosecutions of individuals flouting securities laws resulted in a collective sentencing of approximately 461 years of incarceration and approximately 227 years of probation and deferred adjudication. In 2023, NASAA members in the United States reported that over $333 million in fines and restitution had been levied. NASAA concluded that impersonation, pyramid, and romance scams using cryptocurrency and digital assets can be expected in the future. https://www.nasaa.org/73602/nasaa-releases-2024-enforcement-report/?qoid=current-headlines
8. On October 22, 2024, the SEC instituted administrative proceedings against Francisco Malave for conducting multiple fraudulent and unregistered securities offerings involving the issuance of promissory notes raising approximately $5 million. Malave offered investment advice to his clients and potential clients, guaranteeing the safety and profitability of the securities he offered and sold. Malave misused and misappropriated client funds, failed to alert his advisory clients that their assets were at significant risk and depended upon new investor or client funds for the payment of interest and repayments of principal, and otherwise engaged in a variety of conduct which operated as a fraud and deceit on clients and potential clients. Malave was barred. https://www.sec.gov/files/litigation/admin/2024/ia-6754.pdf
9. On October 21, 2024, the SEC instituted administrative proceedings against Richard Robertson an investment adviser representative, and IFP Advisors, LLC, a registered investment adviser, for engaging in undisclosed “cherry-picking,” a practice of fraudulently allocating profitable trades to favored accounts at the expense of his advisory clients. Robertson allocated a disproportionate number of trades with positive first-day returns to his personal and family accounts, while allocating a disproportionate number of trades with negative first-day returns to certain client accounts. Robertson was able to do this by buying securities in an omnibus account and then waiting until later in the day to allocate the securities to his or his clients’ accounts. IFP failed to implement policies and procedures reasonably designed to prevent violations made false and misleading statements in its Forms ADV concerning supposed safeguards in place to prevent representatives from placing their own interests ahead of those of IFP’s advisory clients. Robertson was ordered to pay disgorgement of $592,437, prejudgment interest of $28,173 and a civil money penalty of $300,000. IFP was ordered to pay a civil money penalty of $400,000. https://www.sec.gov/files/litigation/admin/2024/34-101395.pdf
10. On October 21, 2024, the SEC charged WisdomTree Asset Management Inc., a registered investment adviser, for making misstatements and for compliance failures relating to the execution of an investment strategy that was marketed as incorporating environmental, social, and governance (ESG) factors. WisdomTree represented in prospectuses for three ESG-marketed exchange-traded funds, and to the board of trustees overseeing the funds, that the funds would not invest in companies involved in certain products or activities, including fossil fuels and tobacco. The ESG-marketed funds invested in companies that were involved in fossil fuels and tobacco, including in coal mining and transportation, natural gas extraction and distribution, and retail sales of tobacco products. WisdomTree used data from third-party vendors that did not screen out all companies involved in fossil fuel and tobacco-related activities. WisdomTree did not have any policies and procedures over the screening process to exclude such companies. WisdomTree was ordered to pay a civil money penalty of $4,000,000. https://www.sec.gov/newsroom/press-releases/2024-173
11. On October 21, 2024, the SEC released its 2025 examination priorities. The SEC publishes its examination priorities annually to inform investors and registrants of potential risks in the U.S. capital markets and to make them aware of the examination topics that the Division plans to focus on in the new fiscal year. This year’s examinations prioritized perennial and emerging risk areas, such as fiduciary duty, standards of conduct, cybersecurity and artificial intelligence. Below is a summary on the focus areas:
Adapting our oversight responsibilities as the industry landscape changes
The number and breadth of our staff and specialized examination programs have increased significantly since 1995. In those early years, we had approximately 500 staff across three programs. Today, we have more than 1,100 staff across five programs with specialized functions and capabilities responsible for the Congressionally mandated increase in examination authority for many new types of registered firms.
In fiscal year 2025, for example, we anticipate conducting targeted outreach to the securities industry, focusing on implementation of the requirements contained in the SEC’s updates to Regulation S-P.
Directing resources to critical risk areas
We have spent considerable time and effort since 1995 enhancing and fine tuning our risk assessment and surveillance capabilities to better ensure that the registered firms we believe pose the greatest risk to investors and markets are identified for examination. Leveraging data and information to identify firms and practices that present elevated risk to investors or the markets has been a key foundation of the Division’s risk-based examination-planning and candidate-selection processes. We utilize, for example, a centralized team within EXAMS that includes skilled quantitative analysts and financial engineers to perform more sophisticated data analytics to identify potential examination candidates and practices, as well as serve as another valuable resource to Division staff in analyzing large amounts of complex trade and financial data.
Adherence to Fiduciary Standards of Conduct
As a fiduciary, an investment adviser (adviser) owes a duty of care and a duty of loyalty to its clients. An adviser must, at all times, serve the best interest of its clients and must not place its own interests ahead of the interests of its clients. In addition, an adviser must eliminate or make full and fair disclosure of all conflicts of interest which may lead the adviser—consciously or unconsciously—to render advice that is not disinterested such that a client can provide informed consent to the conflict.
Examining for advisers’ adherence to their duty of care and duty of loyalty obligations remains a priority, and the Division will continue to focus on: Investment advice provided to clients regarding products, investment strategies, and account types, and whether that advice satisfies the fiduciary obligations owed to their clients. In particular, the Division will focus on recommendations related to: (1) high-cost products; (2) unconventional instruments; (3) illiquid and difficult-to-value assets; and (4) assets sensitive to higher interest rates or changing market conditions, including commercial real estate.
Effectiveness of Advisers’ Compliance Programs
The Division’s assessment of the effectiveness of advisers’ compliance programs is a fundamental part of the examination process. Examinations focusing on this topic typically include an evaluation of the core areas of advisers’ compliance programs which include, as applicable and appropriate for each examination, marketing, valuation, trading, portfolio management, disclosure and filings, and custody.
In addition, examinations on this topic typically include an analysis of advisers’ annual reviews of the effectiveness of their compliance programs, which are a critical element for addressing and monitoring conflicts of interests, including those conflicts stemming from the advisers’ business and compensation arrangements, arbitration clauses, and/or affiliations with certain parties and transactions.
In reviewing advisers’ compliance policies and procedures, the Division continues to focus on whether the policies and procedures address compliance with the Advisers Act and the rules thereunder and are reasonably designed to prevent the advisers from placing their interests ahead of clients’ interests. Areas on which examinations may focus include: (1) fiduciary obligations of advisers that outsource investment selection and management; (2) alternative sources of revenue or benefits advisers receive, such as selling non-securities based products to clients; and (3) appropriateness and accuracy of fee calculations and the disclosure of fee-related conflicts, such as those associated with select clients negotiating lower fees when similar services are provided to other clients at a higher fee rate.
The Division’s review of an adviser’s compliance program may focus on or go into greater depth depending on its practices or products. For example, if clients invest in illiquid or difficult-to-value assets, such as commercial real estate, examinations may have a heightened focus on valuation. If advisers integrate artificial intelligence (AI) into advisory operations, including portfolio management, trading, marketing, and compliance, an examination may look in-depth at compliance policies and procedures as well as disclosures to investors related to these areas. If an adviser utilizes a large number of independent contractors working from geographically dispersed locations, examinations may focus on supervision and oversight practices. Examinations may also focus on compliance practices when advisers change their business models or are new to advising particular types of assets, clients, or services.
Examinations of Advisers to Private Funds
Advisers to private funds remain a significant portion of the SEC-registered investment adviser population. The Division will continue to focus on advisers to private funds and prioritize specific topics such as reviewing:
- Whether disclosures are consistent with actual practices and if an adviser met its fiduciary obligations in times of market volatility and whether a private fund is exposed to interest rate fluctuations. Examples of investment strategies that may be sensitive to market volatility and/or interest rate changes include commercial real estate, illiquid assets, and private credit. The Division may particularly focus on examinations of advisers to private funds that are experiencing poor performance and significant withdrawals and/or hold more leverage or difficult-to-value assets.
- The accuracy of calculations and allocations of private fund fees and expenses (both fund-level and investment-level). Examples of areas that may impact the accuracy of fee calculations include valuation of illiquid assets, calculation of post commitment period management fees, offsetting of such fees and expenses, and the adequacy of disclosures.
- Disclosure of conflicts of interests and risks, and adequacy of policies and procedures. Examples of products or practices for the focus of such conflicts, controls, and risks reviews include: (1) use of debt, fund-level lines of credit, investment allocations, adviser-led secondary transactions, transactions between fund(s) and/or others; (2) investments held by multiple funds; and (3) use of affiliated service providers.
- Compliance with recently adopted SEC rules, including amendments to Form PF, and the updated rules that govern investment adviser marketing, to assess whether advisers have established adequate policies and procedures and whether their actual practices conform to them.
Risk areas impacting various market participants
Cybersecurity
The Division will continue to review registrant practices to prevent interruptions to mission-critical services and to protect investor information, records, and assets. Operational disruption risks remain elevated due to the proliferation of cybersecurity attacks, firms’ dispersed operations, weather-related events, and geopolitical concerns. As part of its examinations in this area, the Division will examine registrants’ procedures and practices to assess whether they are reasonably managing information security and operational risks.
A perennial examination priority, the Division’s focus on cybersecurity practices by registrants remains vital to ensure the safeguarding of customer records and information, as applicable. Particular attention will be on firms’ policies and procedures, governance practices, data loss prevention, access controls, account management, and responses to cyber-related incidents, including those related to ransomware attacks. The Division will also review alternative trading systems’ safeguards to protect confidential trading information.
With respect to third-party products and services in particular, the Division will continue to consider cybersecurity risks and resiliency goals associated with third-party products, sub-contractors, services, and any information technology (IT) resources used by the business without the IT department’s approval, knowledge or oversight, or non-supported infrastructure. The focus will include assessments of how registrants identify and address these risks to essential business operations.
Regulation S-ID and Regulation S-P
The Division will assess registrant compliance with Regulations S-ID and S-P, as applicable. Examinations will focus on firms’ policies and procedures, internal controls, oversight of third-party vendors, and governance practices. In addition, the Division will focus on firms’ policies and procedures as they pertain to safeguarding customer records and information at firms providing electronic investment services, including:
- Identification and detection to prevent and protect against identity theft during customer account takeovers and fraudulent transfers.
- Firms’ practices to prevent account intrusions and safeguard customer records and information, including personally identifiable information, especially as it pertains to firms with multiple branch offices.
- Firm training on identity theft prevention program and whether their policies and procedures are reasonably designed to protect customer records and information.
Examinations will also assess a firm’s efforts to address operational risk, including technology risks, as operational failures may impact a firm’s ability to safeguard customer records and information.
In preparation for the compliance date of the Commission’s amendments to Regulation S-P, the Division will engage with firms during examinations about their progress in preparing to establish incident response programs reasonably designed to detect, respond to, and recover from unauthorized access to or use of customer information
Emerging Financial Technologies
The Division remains focused on registrants’ use of certain services, such as automated investment tools, AI, and trading algorithms or platforms, and the risks associated with the use of emerging technologies and alternative sources of data. As such, the Division will, in particular, examine firms that employ certain digital engagement practices, such as digital investment advisory services, recommendations, and related tools and methods. When conducting these reviews, assessments generally will include whether: (1) representations are fair and accurate; (2) operations and controls in place are consistent with disclosures made to investors; (3) algorithms produce advice or recommendations consistent with investors’ investment profiles or stated strategies; and (4) controls to confirm that advice or recommendations resulting from digital engagement practices are consistent with regulatory obligations to investors, including older investors.
With respect to AI, the Division will review registrant representations regarding their AI capabilities or AI use for accuracy. In addition, the Division will assess whether firms have implemented adequate policies and procedures to monitor and/or supervise their use of AI, including for tasks related to fraud prevention and detection, back-office operations, anti-money laundering (AML), and trading functions, as applicable. Reviews will also consider firm integration of regulatory technology to automate internal processes and optimize efficiencies. In addition, the Division will examine how registrants protect against loss or misuse of client records and information that may occur from the use of third-party AI models and tools.
Crypto Assets
The Division continues to observe the proliferation of investments involving crypto assets and their associated products and services. Given the volatility and activity involving the crypto asset markets, the Division will continue to monitor and, when appropriate, conduct examinations of registrants offering crypto asset-related services.
Examinations of registrants will focus on the offer, sale, recommendation, advice, trading, and other activities involving crypto assets that are offered and sold as securities or related products, such as spot bitcoin or ether exchange-traded products.
In particular, these examinations will review whether the registrants: (1) meet and follow their respective standards of conduct when recommending or advising customers and clients regarding crypto assets with a focus on an initial and ongoing understanding of the products that have a particular focus on scenarios where investors are retail-based (including older investors) and investments involving retirement assets; and (2) routinely review, update, and enhance their compliance practices (including crypto asset wallet reviews, custody practices, Bank Secrecy Act (BSA) compliance reviews, and valuation procedures), risk disclosures, and operational resiliency practices (i.e., data integrity and business continuity plans), if required. The Division will assess registrant practices to address the technological risks associated with the use of blockchain and distributed ledger technology, including risks pertaining to the security of crypto assets.
For the full examination priorities letter, please see https://www.sec.gov/newsroom/press-releases/2024-172
12. On October 16, 2024, the SEC instituted administrative proceedings against A.G.P./Alliance Global Partners, LLC (“Alliance”), a dually registered broker-dealer and investment adviser. Alliance published quotes on a daily basis for between 4,300 and 6,500 different municipal bonds at above-market prices on several electronic municipal bond platforms. Alliance published the quotes for a customer (the “Customer”) that was a Sophisticated Municipal Market Professional (“SMMP”) without independently evaluating the fair market value of the bonds at the time it made the quotations. It instead improperly relied on the Customer’s status as a SMMP and the Customer’s values for the bonds. Alliance, acting in a principal capacity, facilitated sales of the bonds attributable to the quotes without evaluating the prevailing market prices for the bonds. Alliance purchased the bonds from the Customer at above-market prices and, on 193 occasions, sold the bonds to other dealers at higher prices. The dealers, in turn, sold the bonds to investors, or other dealers that sold the bonds to investors, at even higher prices. Alliance and the other dealers reported these transactions to the Municipal Securities Rulemaking Board’s (“MSRB’s”) Real-time Transaction Reporting System (“RTRS”) for display to the public on the MSRB’s Electronic Municipal Market Access (“EMMA”) platform. When reporting its transactions to RTRS, on at least 51 occasions, Alliance failed to identify when it purchased the bonds from the Customer at unfair and unreasonable prices as “away from the market” trades. These pricing failures created a risk that other participants in the market relied on the inflated prices to price or value the same or similar bonds. Alliance was ordered to pay disgorgement of $11,369, prejudgment interest of $2,407 and a civil money penalty of $100,000. https://www.sec.gov/files/litigation/admin/2024/34-101352.pdf
13. On October 15, 2024, the SEC instituted administrative proceedings against Gustavo Dolfino for material misrepresentations made to actual and prospective investors in Student Global, LLC (“Student Global”), an education-tech start-up. Dolfino raised approximately $20.6 million dollars from investors by selling them membership interests in Student Global. To make the investment opportunity appear more attractive, Dolfino made material misrepresentations to investors concerning his prior entrepreneurial success, his own investment in Student Global, and his net worth. Specifically, Dolfino told investors that he had sold an internet-based pharmaceutical company, founded and sold a hedge fund, personally invested millions of dollars in Student Global, and that he was worth hundreds of millions of dollars. None of this was true. Dolfino dissolved Student Global after it ran out of money to finance its operations. Student Global’s investors never received any distribution or other return on their investment, and Student Global’s membership interests are now worthless. Dolfino was ordered to pay disgorgement of $5,110,500, prejudgment interest of $646,377 and a civil money penalty of $500,000. https://www.sec.gov/files/litigation/admin/2024/33-11318.pdf
14. On October 15, 2024, the SEC instituted administrative proceedings against Horter Investment Management, LLC, a registered investment adviser and Drew Horter, founder and CEO, for failing reasonably to supervise Kimm Hannan, an Investment Adviser Representative (“IAR”) with Horter Investment. Hannan misappropriated $728,001 from Horter Investment clients purportedly for his outside business activities (“OBA”), but instead he used those funds to gamble, pay personal expenses, and repay other investors. Horter Investment’s overall supervisory structure was inadequate to reasonably supervise its IARs generally and Hannan specifically. Horter Investment failed to establish supervisory policies and procedures and failed to follow those policies and procedures it had in place. Horter Investment also failed reasonably to follow up on red flags. Horter, who had overall supervisory responsibility for Horter Investment, failed to follow specific policies and procedures, failed reasonably to supervise Hannan, made open-ended delegations of supervisory responsibility without following up, and failed reasonably to follow up on red flags. Horter Investment was ordered to pay a civil money penalty of $100,000. Horter was ordered to pay a civil money penalty of $50,000. https://www.sec.gov/files/litigation/admin/2024/ia-6748.pdf
15. On October 15, 2024, the SEC instituted administrative proceedings against Palos Management Inc., a registered investment adviser and Robert Mendel. Palos and one of its portfolio managers, Mendel provided brokerage services without being registered as broker-dealers or otherwise being associated with a registered broker-dealer. In total, they facilitated the purchase and sale of over 37 billion shares of penny stocks for their U.S. clients, generating almost $290 million in proceeds. They were paid over $13 million in transaction-based compensation for these unregistered brokerage activities. Palos was ordered to pay a civil money penalty of $575,000. Medel was barred. https://www.sec.gov/files/litigation/admin/2024/34-101324.pdf
16. On October 11, 2024, the SEC charged Jeffrey Arsenault and two investment advisers he controls, Old Greenwich Capital Advisors, LLC and OGCP Management Co, LLC (Arsenault et al.) with conducting a fraudulent scheme to misappropriate at least $4.1 million from two private funds they advised and ultimately from the investors in those funds. Arsenault et al. misappropriated the assets of two private funds they advised and controlled to pay for Arsenault’s personal expenses and to make unauthorized payments for the defendants’ benefit. to conceal their misappropriation from investors, Arsenault et al. falsely overstated the value of the funds’ investments in investor account statements and tax documents, including by falsely claiming that one of the private funds defendants controlled held substantial investments in the other private fund under their control even after the latter fund had ceased operating. This matter is being litigated. https://www.sec.gov/enforcement-litigation/litigation-releases/lr-26160
17. On October 10, 2024, the SEC charged Rimar Capital USA, Inc. (Rimar USA), Rimar Capital, LLC (Rimar LLC), Itai Liptz, and Clifford Boro for making false and misleading statements about Rimar LLC’s purported use of artificial intelligence, or AI, to perform automated trading for client accounts and numerous other material misrepresentations. Liptz, owner and CEO of Rimar LLC and Rimar USA, with the help of Boro, a Rimar USA board member, raised nearly $4 million from 45 investors for the development of Rimar LLC, an investment adviser that was falsely described as having an AI-driven platform for trading securities. Rimar entities, Liptz, and Boro also made misrepresentations about Rimar LLC’s assets under management and its investment returns. Rimar LLC and Liptz obtained advisory clients using the misleading statements and that Liptz improperly used company funds for personal expenses. Liptz was ordered to pay disgorgement of $202,604, prejudgment interest of $11,007 and a civil money penalty of $250,000. Boro was ordered to pay a civil money penalty of $60,000. https://www.sec.gov/newsroom/press-releases/2024-167
18. On October 9, 2024, the SEC was closely monitoring the impact of Hurricane Milton on investors and capital markets. The SEC also continues to monitor the prior impact of Hurricane Helene. The SEC divisions and offices that oversee companies, accountants, investment advisers, mutual funds, brokerage firms, transfer agents, and other regulated entities and investment professionals will continue to closely track developments. They will evaluate the possibility of granting relief from filing deadlines and other regulatory requirements for those affected by the storms. https://www.sec.gov/newsroom/press-releases/2024-164
19. On October 7, 2024, the SEC instituted administrative proceedings against LDP Partners LLC, an unregistered investment adviser and Himalaya Rao-Potlapally, sole Member and Manager, for breaches of fiduciary duty and misleading statements. LDP Partners has managed one client, a private venture capital fund, The BFM Fund I LLC (the “BFM Fund”). The BFM Fund has sold approximately $4.6 million worth of its securities to fifty-three investors in various states. LDP Partners and Rao-Potlapally, without notifying all investors in the BFM Fund, transferred $600,000 of cash out of the BFM Fund’s bank account to three different bank accounts that were not held or controlled by the BFM Fund, including a personal checking account Rao-Potlapally shared with her spouse. While the $600,000 of cash had been transferred out of the BFM Fund’s bank account and control, LDP Partners and Rao-Potlapally provided a financial statement to the BFM Fund’s investors that misleadingly represented that the $600,000 of cash was still in the BFM Fund’s control, when, in fact, it had been transferred to three other bank accounts that were not held or controlled by the BFM Fund. LDP Partners took a total of approximately $55,000 in improper advance management fees from the BFM Fund. While LDP Partners, through Rao-Potlapally, sought and received approval from members of the BFM Fund’s advisory committee to take these fees in advance rather than as earned on a monthly basis, these transactions were improper because the BFM Fund’s controlling documents did not allow LDP Partners to take advance management fees, and the advisory committee was not authorized to allow the advancement. Rao-Potlapally was ordered to pay a civil money penalty of $10,000. https://www.sec.gov/files/litigation/admin/2024/ia-6743.pdf
20. On October 2, 2024, the SEC instituted administrative proceedings against Thrivent Investment Management, Inc, a registered investment adviser, for failing to comply with Regulation Best Interest (“Regulation BI”) in connection with Thrivent’s recommendation that certain of its retail brokerage customers invest in Class A mutual fund shares instead of Class C mutual fund shares offered by the Nebraska NEST Advisor College Savings Plan (“Nebraska 529 Savings Plan”) and the Illinois Bright Directions Advisor-Guided 529 College Savings Program (“Illinois 529 Savings Plan”). The Class A shares of the Nebraska and Illinois 529 Savings Plans imposed upfront sales charges as well as annual fees. The Class C mutual fund shares did not impose upfront sales charges but charged higher annual fees than Class A shares for the first 10 years of the investment, after which they converted to Class A shares. Thrivent and its registered representatives utilized a 529 College Savings Plans share class calculator to determine which mutual fund share class to recommend to retail customers. While historically, it may have been in the best interest of many of Thrivent’s customers to invest in Class A shares of the Nebraska and Illinois 529 Savings Plans, the Illinois 529 Savings Plan and the Nebraska 529 Savings Plan made changes to their expense structures. Thrivent failed to update its calculator to account for these expense structure changes implemented and recommended Class A shares of the Nebraska and Illinois 529 Savings Plans to its customers. Thrivent was ordered to pay a civil money penalty of $25,000. https://www.sec.gov/files/litigation/admin/2024/34-101234.pdf
21. On October 2, 2024, the SEC announced that Gurbir S. Grewal, Director of the Division of Enforcement will depart the agency effective Oct. 11, 2024. Upon Mr. Grewal’s departure, Sanjay Wadhwa, the Division’s Deputy Director, will serve as Acting Director, and Sam Waldon, the Division’s Chief Counsel, will serve as Acting Deputy Director. https://www.sec.gov/newsroom/press-releases/2024-162