SEC Continues Crackdown on Use of “May” in Disclosures

The SEC continues to emphasize that it is not enough for an adviser to disclose that it “may” engage in a particular practice when it is, in fact, actually engaging in that practice. This is particularly true in regard to disclosures concerning the adviser’s compensation. A recent SEC settlement is a case in point. An investment adviser disclosed to its investors that it would charge certain up-front fees in connection with fund investments, but it only disclosed that an affiliated broker “may” also receive commissions on fund deals when, in fact, the broker did receive commissions on several deals. This article examines the adviser’s allegedly deficient disclosures regarding its compensation and conflicts of interest and the terms of the settlement order. This settlement, which came shortly after the issuance of the SEC’s Interpretation Regarding Standard of Conduct for Investment Advisers, shows the great weight that the SEC places on clear disclosure of conflicts of interest – especially those that are not merely theoretical. See “Navigating the Interpretation Regarding an Investment Adviser’s Standard of Conduct: What It Means to Be a Fiduciary (Part One of Three)” (Oct. 17, 2019).

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