Because of the potential conflicts of interest inherent in transactions between an adviser and its funds, and trades between funds managed by the same adviser, the SEC scrutinizes those transactions closely. An investment adviser and its principal recently ran afoul of the SEC by effecting transactions between one of the adviser’s funds in which the principal held a substantial position and other adviser funds or separately managed accounts. The SEC claimed that the respondents failed to comply with the notice and consent requirements for principal transactions set forth in Section 206(3) of the Investment Advisers Act of 1940 and failed to implement the adviser’s compliance policies and procedures. This article explores the SEC settlement order. See “OCIE Risk Alert Details Concerns About Principal Transactions and Agency Cross Trades
” (Oct. 24, 2019).