The SEC continues to focus on disclosure issues, particularly in the context of conflicts of interest. A recent court decision supports the SEC’s push for adequate disclosure of potential and actual conflicts of interest, while undermining the regulator’s characterization of willful omissions in disclosures. The U.S. Court of Appeals for the D.C. Circuit (Court) ruled in Robare v. SEC
that an investment adviser and two of its principals violated Section 206(2) of the Investment Advisers Act of 1940 by negligently failing to adequately disclose to investors its financial arrangement with a service provider. The Court held, however, that this negligent conduct could not also be the basis for a violation of Section 207 for willful inadequate disclosures to the SEC. This two‑part series analyzes the Robare
decision. This second article provides a former senior SEC official’s perspectives on the implications of the Robare
decision for investment advisers and the SEC’s Division of Enforcement. The first article
summarized the Commission’s findings and the Court’s rulings on those findings. For analysis of other recent significant court rulings, see “What the Supreme Court’s Decision in Lorenzo v. SEC Means for Fund Managers
” (Apr. 25, 2019); “Recent Cayman Grand Court Decision Signals That Fund Managers Should Review Indemnification Provisions in Governing Documents
” (Apr. 11, 2019); and “U.S. District Court Rules That Digital Tokens in Initial Coin Offerings May Not Constitute Securities
” (Jan. 24, 2019).