On 15 November 2022, the U.S. Securities and Exchange Commission (SEC) announced its enforcement statistics for its 2022 fiscal year (FY 2022), noting that it filed 760 total enforcement actions — a 9% increase over fiscal year 2021. This total was comprised of 462 new actions, 169 “follow-on” actions, and 129 actions for delinquent filings. Money obtained in SEC actions, comprising civil penalties, disgorgement, and pre-judgment interest, totaled a record-breaking $6.439 billion (compared to $3.852 billion in fiscal year 2021). Civil penalties, totaling $4.194 billion, were also the highest on record.Read More
On November 2, by a vote of 3 to 2, the Securities and Exchange Commission adopted, largely as proposed, amendments to Form N-PX under the Investment Company Act of 1940 and new Rule 14Ad-1 under the Securities Exchange Act of 1934 (Amendments). The Amendments expand the proxy voting information that registered investment companies (Funds) report on Form N-PX, and require, for the first time, Form 13F filers (Managers) to report annually on Form N-PX how they voted proxies concerning certain shareholder advisory votes on executive compensation (“say-on-pay” votes).Read More
By: Clair Pagnano
In a significant departure from the SEC’s long-standing position on the use of fund names, the SEC is proposing amendments to Rule 35d-1 that would expand the Names Rule to include terms denoting strategies, thereby subjecting funds that use the terms “Growth,” “Value,” and funds that use ESG-related terms in the fund’s name to the rule. It would also prohibit funds from using ESG-related terms in their names if ESG factors are considered to the same extent as other screening factors in the management of the fund (so-called “integration” funds). These and other key aspects of the proposed rule include:Read More
By: Keri E. Riemer
The SEC’s Division of Examinations recently released a risk alert describing a pattern of deficiencies relating to investment advisers’ use of material non-public information (MNPI). The Staff highlighted the following as areas of concern:
- Alternative Data. Advisers that used data from non-traditional sources beyond company financial statements, filings, and press releases appeared to not have adopted or implemented written policies and procedures reasonably designed to address the potential risk of receiving and using MNPI through such sources.
- “Value-Add Investors”. Advisers did not have—or did not appear to implement—adequate policies and procedures related to investors who are more likely to possess MNPI (e.g., officers or directors of a public company, asset management firm principals or portfolio managers, and investment bankers).
- Expert Networks. Advisers did not appear to adequately track calls with expert network consultants, retain detailed notes from the calls, and monitor trading activity related to companies in industries similar to those discussed during the calls.
- Deficiencies related to Access Persons. The Staff identified advisers who failed to correctly identify “access persons” (as defined in Rule 204A-1(c) under the Investment Advisers Act), ensure that those access persons obtain pre-approval for investments in IPOs and other similar offerings, and maintain adequate records of the holding and transactions of access persons.
The Staff also encouraged industry participants to review their practices, policies, and procedures regarding the topics addressed above. We recently issued a client alert which describes the risk alert in greater detail and provides takeaways for industry participants.
Fund managers can expect changes to custodian and other fund service provider practices in response to regulator challenge, and should review their due diligence of service providers.
In a letter on 23 March 2022, the FCA instructed the Chief Executive and Boards of third-party custodians, depositories for authorised and non-authorised funds, and third-party administrators to review key risks identified by the FCA, including the following:Read More