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Cady Bar the Door Insight & Commentary on SEC Enforcement Actions and Related Issues

Category Archives: Investment Advisers

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SEC Says the Cyber Police Are Coming

Posted in Broker-Dealers, Compliance, Investment Advisers

Pretty soon we’ll all be data privacy lawyers.  The SEC is certainly doing its part to ensure that comes to pass.  Earlier this year the SEC’s Office of Compliance, Inspections, and Examinations announced that its 2014 Examination Priorities included a focus on technology, including cybersecurity preparedness.  On  March 26, the SEC sponsored a Cybersecurity Roundtable… Continue Reading

SEC CustodyFest Vol. 3: Jason Returns

Posted in Compliance, Investment Advisers

In this last chapter of SEC CustodyFest, we visit Knelman Asset Management Group.   For this case, I’m mostly interested in discussing a change to the SEC’s custody rule, Rule 206(4)-2, from 2010. Rule Change Before its amendment in March of that year, the rule required advisers with custody of its clients’ assets to: have a… Continue Reading

SEC CustodyFest Vol. 1: A New Beginning

Posted in Compliance, Investment Advisers, Non-scienter-based Violations

Imagine being Andrew Bowden.  As director of the SEC’s Office of Compliance, Inspections and Examinations, you know you don’t have enough staff to conduct reasonably regular exams of registered investment advisers.  You also know that some members of Congress continue to take great delight in beating up the SEC for its failures with the Bernard… Continue Reading

SEC Takes Oddly Aggressive Stance on Payment of Monetary Sanctions

Posted in Hedge Funds, Investment Advisers, Investment Frauds

When Mary Jo White was installed as the SEC’s chair in April, I had little doubt she would be well-suited for her new role.  She is extremely well regarded in the securities bar, and doubts about “ties to Wall Street” compromising her effectiveness seemed overblown to me.  I wondered, though, whether her tenure would change the… Continue Reading

SEC Dings Investment Adviser for Custody Violations, Failure to Supervise

Posted in Compliance, Investment Advisers, Non-scienter-based Violations

Readers of this space – and SEC observers generally – will recall a March 4 risk alert designed to warn investors about the ways U.S. investment advisers had recently been found to have violated the SEC’s asset custody rule.  The number and variety of violations were legion.  Advisers were not assuring themselves that clients were… Continue Reading

Accounting Fraud Not Just for Public Companies Anymore

Posted in Accounting Fraud, Investment Advisers, Non-scienter-based Violations, Private Equity

One of the salient features of the SEC’s enforcement program in recent years has been a dearth of accounting fraud cases.  While those cases used to be the SEC’s bread and butter, and hovered around 200 actions per year, they have dropped off dramatically since 2007, and hit a low of 79 last year.  Only… Continue Reading

SEC Ramps Up Its Private Equity Parade

Posted in Broker-Dealers, Investment Advisers, Non-scienter-based Violations, Private Equity

Bruce Karpati, chief of the SEC’s Asset Management Unit, promised us several weeks ago that enforcement actions against private equity firms were about to heat up.  He wasn’t kidding.  Last Monday, the SEC filed two sets of settled administrative proceedings against private equity firms.  We’ll discuss one of them today, and the second in a… Continue Reading

SEC Issues Risk Alert on Investment Adviser Custody Rule

Posted in Auditors, Compliance, Investment Advisers, Non-scienter-based Violations

The SEC can express its displeasure with a particular securities practice in a number of different ways, with increasing levels of fun for the alleged malefactor.  Here’s a non-exhaustive list: One thing it can do is file an enforcement action in federal or administrative court.  This option is not fun at all.  It’s not as… Continue Reading

SEC Enforcement Coming to a Private Equity Firm Near You

Posted in Investment Advisers, Private Equity

Bruce Karpati, chief of the SEC’s Asset Management Unit (“AMU” or the “Unit”), recently spoke at the Private Equity International Conference in New York, and opened a window into the Unit’s views toward the industry.  In short, watch out, because the SEC is coming.  And given the recent expansion of the private equity space and… Continue Reading

SEC’s Asset Management Unit Focuses on Compliance Failures, Vol. 2

Posted in Compliance, Investment Advisers, Non-scienter-based Violations

As we discussed last month, the SEC’s Asset Management Unit has developed a likeness for not just big, headline-grabbing cases, but relatively small compliance-based cases that are designed to prevent minor problems from growing into large ones.  People like to say that the damage is done before the SEC ever gets involved, and that is… Continue Reading

SEC’s Asset Management Unit Focuses on Compliance Failures, Vol. 1

Posted in Compliance, Investment Advisers, Non-scienter-based Violations

The SEC Enforcement Division’s Asset Management Unit has brought some substantial cases over the last year, including a number arising out of its Aberrational Performance Inquiry.  Another focus for the unit has been compliance failures at registered investment advisers.  On November 20th, the unit filed a pair of administrative cases addressing some of those failures. … Continue Reading

Several Thoughts about the Largest Insider Trading Case in History

Posted in Insider Trading, Investment Advisers, Parallel Proceedings, SEC Litigation

The SEC and Justice Department filed a massive insider trading case in the Southern District of New York yesterday.  The actual defendants include University of Michigan neurology professor Sidney Gilman, hedge fund advisory firm CR Intrinsic Investors LLC, and Matthew Martoma, a portfolio manager at CR Intrinsic between 2006 and 2010.  According to the Wall… Continue Reading

Khuzami Touts SEC’s Focus on Compliance

Posted in Compliance, Insider Trading, Investment Advisers, Non-scienter-based Violations

The SEC’s Enforcement Director, Rob Khuzami, gave an interview to Thomson Reuters last week that you should read.  These things are always edited, so it’s hard to know in what order he spoke, but as it is written he gets the interview off to an interesting start.  He does not crow about any particularly “big”… Continue Reading

SEC Charges AXA Advisors with Failure to Supervise

Posted in Broker-Dealers, Investment Advisers, Non-scienter-based Violations

The SEC has brought two failure-to-supervise cases in the last several days.  I’ll cover both in the order of their release. The first of this duo was against AXA Advisors, which failed to supervise a registered representative with the comically villainous name of Leo T. Buggy.  Buggy operated out of a single-representative office in Rock… Continue Reading

SEC Sues IAs for Compliance Failures, Part III

Posted in Compliance, Investment Advisers, Non-scienter-based Violations

In the final chapter of this Cady Bar the Door investment adviser extravaganza, we examine In re Feltl & Company, Inc., Admin. Proc. File No. 3-14645 (Nov. 28, 2011). Minneapolis-based Feltl & Co. is a dually-registered broker-dealer and investment adviser, and substantially larger than the other two IAs in the trio, OMNI and Asset Advisors…. Continue Reading

SEC Sues Investment Advisers for Compliance Failures, Part II

Posted in Compliance, Investment Advisers, Non-scienter-based Violations

The second of three cases the SEC’s Asset Management Unit brought against registered investment advisers on November 28th, In re OMNI Investment Advisors Inc., Admin Proc. File No. 3-14643 (Nov. 28, 2011), was much like Asset Advisors.  OMNI, based in Draper, Utah, had about 190 clients with approximately $65 million in assets under management.  OMNI… Continue Reading

SEC’s Asset Management Unit Picks Up Its Game

Posted in Compliance, Investment Advisers, Non-scienter-based Violations

The SEC’s Asset Management Unit is making its presence felt.  Last week the unit brought a slew of cases against investment advisers and hedge funds that put the group on the forefront of the Enforcement Division’s efforts to remake itself after the Bernard Madoff fiasco.  Though the two groups of cases were obscured by Judge… Continue Reading