Rule 206(4)-7 promulgated under the Investment Advisers Act of 1940 requires registered investment advisers to conduct an annual compliance review to ensure their compliance policies and procedures are adequate and have been implemented effectively. A recent study found that an alarming number of registered private fund advisers routinely fail to conduct these required annual reviews. See “Survey Reveals Compliance Weaknesses of Hedge Fund Managers Relative to Other Financial Services Firms, Including CCO Qualifications and Frequency of Annual Compliance Reviews” (Sep. 15, 2016). A recent SEC enforcement proceeding is a timely reminder of the need to conduct such reviews. The SEC found that since registering with the SEC in 2010, an investment adviser failed to conduct a single annual compliance review. This article summarizes the underlying facts and the SEC’s specific findings alleged in the settlement order. For more on conducting annual compliance reviews, see “Four Essential Elements of a Workable and Effective Hedge Fund Compliance Program” (Aug. 28, 2014); “PLI Panel Provides Regulator and Industry Perspectives on SEC and NFA Examinations, Allocation of Form PF Expenses, Annual Compliance Review Reporting and NFA Bylaw 1101 Compliance” (Jun. 13, 2013); as well as our two-part series “How Hedge Fund Managers Should Approach Preparing for, Conducting and Documenting the Annual Compliance Review”: Part One (Mar. 22, 2012); and Part Two (Mar. 29, 2012).