SEC Imposes Substantial Sanctions for Cross Trades & Principal Transactions, Despite Self-Reporting, Cooperation & Remediation

Over a three-year period, an SEC-registered investment adviser executed more than 126,000 trades between various client accounts and/or the client accounts of affiliates. In a recently settled enforcement proceeding, the SEC claimed that more than 44,000 of those trades were principal transactions the adviser had not disclosed to the client in question and for which it had not obtained the client’s prior consent. It also allegedly effected more than 500 cross trades involving mutual funds in the absence of an exemptive order or available exemption. The adviser discovered and remediated the issue, voluntarily reported the violations to the SEC and cooperated with the SEC’s investigation – but it still received a substantial fine, censure and a cease-and-desist order. This article details the relevant laws and regulations; the alleged violations; the adviser’s remediation and cooperation; and the terms of the settlement. See “Pair of Risk Alerts Focuses on Issues Associated With Cross Trades, Principal Transactions and Wrap Fees” (Aug. 19, 2021); and “OCIE Risk Alert Details Concerns About Principal Transactions and Agency Cross Trades” (Oct. 24, 2019).

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