Ensuring full and accurate disclosure is one of the fundamental goals of the federal securities laws; therefore, a fund’s failure to adopt practices comporting with its disclosures is a surefire way for it to garner unwanted attention from the SEC. Recently, a large dually registered investment adviser and broker-dealer settled SEC charges relating to several compliance failures, including the failure to conduct due diligence on certain third-party managers of its wrap fee platforms
as required by its client agreements and SEC filings. See “OCIE Director Andrew Bowden Identifies the Top Three Deficiencies Found in Hedge Fund Manager Presence Exams and Outlines OCIE’s Examination Priorities
” (Oct. 10, 2014). In the press release announcing the settlement, C. Dabney O’Riordan
, Co-Chief of the Asset Management Unit of the SEC Division of Enforcement, observed that the adviser “failed to ensure that clients were receiving the services they were paying for.” The SEC also asserted that the firm’s weak controls resulted in client overcharges and that it failed to disclose or mitigate the conflict of interest that stemmed from its recommendation of certain mutual fund share classes to clients. This article summarizes the alleged misconduct and the terms of the settlement order. For more on the SEC’s focus on reducing conflicts of interest, see “Former SEC Asset Management Unit Co-Chief Describes the Agency’s Focus on Conflicts of Interests and Increased Efforts to Crack Down on Private Fund Managers
” (Sep. 15, 2016); and “SEC Division Heads Enumerate Enforcement Priorities, Including Conflicts of Interest, Valuation, Performance Advertising and CCO Liability (Part Two of Two)
” (May 5, 2016).
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