Hedge funds have increasingly turned to so-called “alternative data” – which does not come from a company’s financial statements or other traditional sources – to enhance their investment processes, although the use of that data, whose provenance may be unclear and which may contain material nonpublic information, poses significant risks. The SEC recently took aim at an alternative data vendor, which purported to use the mobile app data it collected to generate anonymized estimates of app downloads, usage and revenue that it sold to fund managers and other businesses. In the settled enforcement proceeding, the SEC charged the vendor and its founder with securities fraud for misrepresenting how it used the data it collected and manipulating the results generated by its statistical models. This article details the SEC’s allegations and the terms of the settlement order, with commentary on mitigating the risks of using alternative data vendors from Benjamin Kozinn, partner at Lowenstein Sandler. For additional insights from Kozinn, see our two-part coverage of the SEC’s 2021 Reg Flex Agendas: “Key Components and Driving Factors” (Aug. 19, 2021); and “Key Items for Private Funds and the Rulemaking Process” (Aug. 26, 2021); as well as “HFLR Program Explores Valuation of Illiquid Assets and Valuation Governance” (Jan. 28, 2021).