Cross trades and principal transactions present investment advisers with unique conflicts of interest and regulatory challenges, which are compounded when one of the parties to a cross trade is a registered investment company. In a recent SEC settlement, a registered investment adviser believed it was acting in the best interests of its clients by effecting cross trades to retain desirable investments and save clients transaction costs. In fact, although the SEC acknowledged that the adviser believed that it was acting fairly, it apparently did not understand that those trades fell within applicable provisions of the Investment Advisers Act of 1940 and the Investment Company Act of 1940. This article explores the relevant rules and regulations; the facts underlying the enforcement proceeding; and the terms of the settlement order. This enforcement action is an important reminder that advisers must have robust policies and procedures for principal transactions and cross trades; adhere to those policies and procedures; and conduct appropriate training. See “SEC Continues to Focus on Cross Trades and Principal Transactions” (Apr. 16, 2020); and “OCIE Risk Alert Details Concerns About Principal Transactions and Agency Cross Trades” (Oct. 24, 2019).