Category: Investment Advisers


OCIE Highlights the Top 5 Compliance Topics from Examinations of Investment Advisers

Posted on February 10th, by and in Compliance Rule, Custody Rule, Ethics Rule, Form ADV, Investment Advisers, OCIE, Office of Compliance Inspections and Examinations, SEC Guidance. Comments Off on OCIE Highlights the Top 5 Compliance Topics from Examinations of Investment Advisers

On February 7, 2017, the Office of Compliance Inspections and Examinations (“OCIE”) issued a Risk Alert discussing the five most frequent compliance topics identified in OCIE examinations of investment advisors. The Alert was compiled based on deficiency letters from over 1,000 investment adviser examinations completed during the past two years. The top five topics are: (1) the Compliance Rule; (2) Regulatory Filings; (3) the Custody Rule; (4) the Code of Ethics Rule; and (5) the Books and Records Rule.

The Compliance Rule

The Compliance Rule requires: (1) written and policies and procedures reasonably designed to prevent violations of the Advisers Act; (2) annual review of the policies and their implementation; and (3) a chief compliance officer who monitors the policies and procedures.  Examples of common Compliance Rule problems included:

Advisers did not follow their compliance policies and procedures;
Annual reviews were not performed or … Read More »


The SEC’s First Risk Alert of Fiscal Year 2017 Targets Registrant Rule 21F-17 Compliance

Posted on November 8th, by , and in Dodd-Frank, Investment Advisers, OCIE, Whistleblower. Comments Off on The SEC’s First Risk Alert of Fiscal Year 2017 Targets Registrant Rule 21F-17 Compliance

The Securities and Exchange Commission (SEC or Commission) Office of Compliance Inspections and Examination (OCIE) issued a Risk Alert on October 24, 2016, titled “Examining Whistleblower Rule Compliance.” This recent Risk Alert continues the SEC’s aggressive efforts to compel Rule 21F-17 compliance and puts the investment management and broker-dealer industries on formal notice that OCIE intends to scrutinize registrants’ compliance with the whistleblower provisions of the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd–Frank). By way of background, Dodd–Frank established a whistleblower protection program to encourage individuals to report possible violations of securities laws. Importantly, in addition to providing whistleblowers with financial incentives, Rule 21F-17 provides that no person may take action to impede a whistleblower from communicating directly with the SEC about potential securities law violations, including by enforcing or threatening to enforce a severance agreement or a … Read More »


Private Equity Fund Advisers Agree to Settle Charges of Improperly Disclosing Acceleration of Monitoring Fees and Improperly Supervising Expense Reimbursement Practices

Posted on August 25th, by and in Civil Penalties, Conflict of Interest, Fees, Investment Advisers, Neither Admit Nor Deny, Private Equity, Settlements. Comments Off on Private Equity Fund Advisers Agree to Settle Charges of Improperly Disclosing Acceleration of Monitoring Fees and Improperly Supervising Expense Reimbursement Practices

In a recent action, the SEC demonstrated its continuing focus on private equity fund advisers’ fees. On August 23, 2016, Apollo Management V, LP, Apollo Management VI, LP, Apollo Management VII, LP, and Apollo Commodities Management, LP (collectively, “Apollo”), agreed to settle charges brought by the SEC for “misleading fund investors about fees and a loan agreement and failing to supervise a senior partner who charged personal expenses to the funds” in violation of Sections 206 and 203 of the Advisers Act. Press Release No. 2016-165.

According to the SEC Order, Apollo advises a number of private equity funds that own multiple portfolio companies. Like most private equity fund advisers, Apollo charges annual management fees and certain other fees to the limited partners in its private equity funds and charges monitoring fees to certain portfolio companies under separate monitoring agreements. Release … Read More »


Third Circuit Defined “Investment Adviser” In Sentencing Appeal

Posted on August 18th, by and in Investment Advisers, SEC Guidance, Sentencing. Comments Off on Third Circuit Defined “Investment Adviser” In Sentencing Appeal

Everett C. Miller pleaded guilty to securities fraud after he sold more than $41 million in phony, unregistered promissory notes in his firm, Carr Miller Capital, LLC, that falsely promised high returns with no risk. As part of his plea, Miller and the government stipulated to what they considered to be an appropriate offense level under the United States Sentencing Guidelines (the “Guidelines”). At sentencing, however, the district court applied the four-level investment adviser enhancement provided for by the Guidelines for securities laws violations perpetrated by “investment advisers,” as that term is defined by the Investment Advisers Act of 1940, 15 U.S.C. § 80b-2(a)(11). See U.S.S.G. § 2B1.1(b)(19)(A)(iii). Due to the enhancement, Miller received a 120-month sentence.

On appeal, Miller challenged, among other things, the application of the investment adviser enhancement, arguing that he was not an “investment adviser” under the … Read More »


Registered Investment Advisor Agrees to Settle Charges of Failing to Clearly Disclose Transaction Costs Beyond “Wrap Fees” to Investors

Posted on July 19th, by and in Civil Penalties, Investment Advisers, Neither Admit Nor Deny, Settlements, Strict Liability. Comments Off on Registered Investment Advisor Agrees to Settle Charges of Failing to Clearly Disclose Transaction Costs Beyond “Wrap Fees” to Investors

On July 14, 2016, RiverFront Investment Group, LLC (“RiverFront”) agreed to settle charges brought by the SEC for failing to “properly prepare clients for additional transaction costs beyond the ‘wrap fees’ they pay to cover the cost of several services bundles together.” Press Release No. 2016-143. According to the SEC, participants in wrap fee programs usually pay an annual fee “which is intended to cover the cost of several services ‘wrapped’ together, such as custody, trade execution, portfolio management, and back office services.” Release No. 4453. The SEC found that under these wrap programs, a sponsoring firm will offer clients a selection of third-party managers, referred to as subadvisors, to have discretion over the clients’ investment decisions. When subadvisors execute trades on behalf of clients through a sponsor-designated broker-dealer, the transaction costs associated with the trades are included in the … Read More »


SEC Strikes a Harsh Tone on Receipt of Transaction-based Compensation by Private Equity Fund Managers

Posted on June 15th, by , and in Investment Advisers, Private Equity. Comments Off on SEC Strikes a Harsh Tone on Receipt of Transaction-based Compensation by Private Equity Fund Managers

On June 1, 2016, the Securities and Exchange Commission (SEC) sent a warning to private equity fund managers who receive transaction-based fees in connection with the purchase and sale of portfolio companies by charging Blackstreet Capital Management (Blackstreet), a private equity fund advisory firm, and its principal, Murry Gunty with, among other things, acting as an unregistered broker-dealer. According to the SEC, Blackstreet received fees, separate and apart from its management fees, for performing “in-house brokerage services” in connection with the acquisition and disposition of portfolio companies for two private equity funds. The fact that Blackstreet Capital fully disclosed the fees did not affect the SEC’s conclusion that Blackstreet acted as an unregistered broker-dealer.

Blackstreet and Gunty settled, on a neither-admit-nor-deny basis, with the SEC and agreed to pay more than $3.1 million in disgorgement and civil penalties. Importantly, the $3.1 million … Read More »


SEC Charges Mutual Fund Board Members and Investment Adviser with Violations of Section 15(c) For Deficient Advisory Contract Approval Process

Posted on July 1st, by and in Board of Directors, Investment Advisers, Section 15(c). Comments Off on SEC Charges Mutual Fund Board Members and Investment Adviser with Violations of Section 15(c) For Deficient Advisory Contract Approval Process

On June 17, 2015, the SEC charged Commonwealth Capital Management (“CCM”), an investment adviser to various mutual funds within World Funds Trust (“WFT”) and World Funds, Inc. (“WFI”), for violating Section 15(c) of the Investment Company Act by providing incomplete and inaccurate information to two mutual fund boards, and CCM’s majority owner John Pasco with causing the violations. It further charged three former trustees of the WFT board, J. Gordon McKinley III, Robert R. Burke, and Franklin A. Trice III, with Section 15(c) violations because they did not follow up with CCM to obtain the requested information that was never provided. Instead, they approved CCM’s advisory contracts for the WFT Funds without the reasonably necessary information needed to evaluate the terms of the contracts.

Section 15(c) requires that a majority of the fund’s independent directors approve the terms of any advisory … Read More »


SEC’s OCIE Director Reports Violations Regarding Fees Common at PE Firms

Posted on May 19th, by in Investment Advisers, OCIE, Private Equity, SEC Guidance. Comments Off on SEC’s OCIE Director Reports Violations Regarding Fees Common at PE Firms

In remarks to a group of compliance officers from investment advisers to private equity funds in New York City, Andrew J. Bowden, the director of the SEC’s Office of Compliance Inspections and Examinations, announced that the Exam staff has identified violations and material control weaknesses at more than half of all private equity advisers examined pursuant to the SEC’s recent initiative to examine recently registered advisers (commonly referred to as “Presence Exams”). See Spreading Sunshine in Private Equity.

According to Bowden, OCIE has conducted Presence Exams of more than 150 newly registered private equity advisers since October 2012 and is on track to complete its goal of examining 25% of the new private fund registrants by the end of this year. Bowden noted that private equity funds have historically involved limited transparency, limited investor rights, and significant opportunities for conflicts of interest. … Read More »


SEC Offers Guidance on Use of Social Media Commentary by Investment Advisers

Posted on April 11th, by in Investment Advisers, SEC Guidance, Social Media. Comments Off on SEC Offers Guidance on Use of Social Media Commentary by Investment Advisers

This article was first published by Drinker Biddle’s Investment Management Group and republished here for the benefit of our readers.

On March 28, 2014, the Securities and Exchange Commission (“SEC”), Division of Investment Management, issued guidance that clarifies when it is permissible for an investment adviser or an investment adviser representative (“IAR”) to publish public commentary (“testimonials”) about the investment adviser. In light of the widespread use of social media by consumers, the SEC issued guidance in the form of a Q&A that now generally permits an investment adviser to publish testimonials through social media, so long as such testimonials originally appear on independent, third-party social media sites, are unedited and the investment adviser or its IAR has no direct or indirect influence or control over the independent site or its contents.

Section 206(4) of the Investment Advisers Act of 1940 (“Advisers Act”) … Read More »




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