Tag:United States

1
SEC Risk Alert Offers Initial Observations on Compliance
2
Marketing Rule Enforcement Remains Priority: SEC Charges Five Advisers for Marketing Rule Violations
3
SEC Fines Adviser for Off-Channel Communications
4
The SEC Narrows the Internet Adviser Exemption
5
SEC’s Increased Focus on “AI Washing:” Charges Announced Against Two Investment Advisers for Violations of the Marketing Rule
6
NAPFM, AIMA, and MFA File Complaint Against SEC’s New Dealer Rule
7
Modernized SBIC Program Hits Milestones
8
CFTC Proposes Rule to Address Margin Adequacy and Treatment of Separate Accounts by FCMs
9
FinCEN Proposes AML Requirements on Registered Investment Advisers (including Exempt Reporting Advisers)
10
Fifth Circuit Court of Appeals Hears Oral Arguments in Industry Groups’ Ongoing Petition to Vacate Private Fund Adviser Rules

SEC Risk Alert Offers Initial Observations on Compliance

By: Michael S. Caccese and Lance C. Dial

On 17 April 2024, the Securities and Exchange Commission (SEC) Division of Examinations issued a risk alert entitled “Initial Observations Regarding Marketing Rule Compliance” (the Alert). The Alert reflected the SEC examination staff’s preliminary observations coming from its examination program and noted that compliance with Rule 206(4)-1 (the Marketing Rule) continues to be a priority for the SEC staff.

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Marketing Rule Enforcement Remains Priority: SEC Charges Five Advisers for Marketing Rule Violations

By: Lance C. Dial, Pablo J. Man, Pamela A. Grossetti, and Bradley D. Bostwick

On 12 April 2024, the SEC announced the settlement of charges against five registered investment advisers for violations of Rule 206(4)-1 under the Advisers Act (Marketing Rule). The allegations in these settlements will be familiar: the SEC determined that the five firms advertised hypothetical performance to the general public on their websites. As noted in prior settlements, the SEC takes the view that hypothetical performance should not be included on a firm’s public website, because public website disclosure does not allow firms to ensure that (through the adoption and implementation of policies and procedures) the hypothetical performance is “relevant to the likely situation and investment objectives of each advertisement’s intended audience”, as required under the Marketing Rule. 

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SEC Fines Adviser for Off-Channel Communications

By: Lance C. Dial and Pablo J. Man

On 3 April 2024 the SEC announced the first off-channel communications settlement with a registered investment adviser who was not otherwise affiliated with a broker-dealer. This settlement provides new insight into how the SEC views adviser’s recordkeeping obligations, which are narrower than broker-dealer regulatory requirements.

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The SEC Narrows the Internet Adviser Exemption

By: Jennifer L. Klass, Matthew J. Rogers, and Bradley D. Bostwick

On 27 March 2024, the US Securities and Exchange Commission (SEC) adopted amendments (the Amendments) to Rule 203A-2(e) under the Investment Advisers Act of 1940, known as the “Internet Adviser Exemption.” The Internet Adviser Exemption allows certain advisers that provide investment advice through an interactive website (Internet Advisers) to register with the SEC, even if they do not have enough assets under management to otherwise qualify for federal registration.

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SEC’s Increased Focus on “AI Washing:” Charges Announced Against Two Investment Advisers for Violations of the Marketing Rule

By: Matthew Rogers and Annabelle North

Following up on its previously-issued Investor Alert warning investors on the use of so-called “AI washing” by advisers in their marketing materials, the Securities and Exchange Commission (SEC) announced on 18 March 2024 the settlements of charges against two investment advisers for “making false and misleading statements about their purported use of artificial intelligence (AI).”

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NAPFM, AIMA, and MFA File Complaint Against SEC’s New Dealer Rule

By: Richard F. Kerr, Eden L. Rohrer, Jessica D. Cohn, and Raymond F. Jensen

On 18 March 2024, the National Association of Private Fund Managers, Alternative Investment Management Association, Limited and Managed Funds Association (together, Plaintiffs) jointly filed a complaint (Complaint) against the US Securities and Exchange Commission (SEC) alleging that the SEC’s newly adopted final rule (Dealer Rule) vastly overstepped and expanded the SEC’s authority. The Complaint, which was filed in federal court in Texas, details how the Dealer Rule, expanding those industry participants who would be “dealers” under the Securities Exchange Act of 1934, is overbroad and was adopted in violation of the Administrative Procedures Act.

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Modernized SBIC Program Hits Milestones

By: TJ Bright, Matt F. Phillips, and Tristen C. Rodgers

For the past two decades, the Small Business Investment Company (SBIC) program (the SBIC Program) has primarily offered one type of government-guaranteed loan to private investment funds holding an SBIC license (SBICs): the “Standard SBIC Debenture.” This loan requires private funds to pay the U.S. Small Business Administration (SBA) interest semi-annually, which closely aligns with the cash flow patterns of mezzanine debt and private credit funds. As a result, the ecosystem of debt-focused SBICs has thrived. However, the SBIC Program has been less attractive to funds with equity-oriented strategies.

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CFTC Proposes Rule to Address Margin Adequacy and Treatment of Separate Accounts by FCMs

By: Matthew Rogers and Benjamin Skillin

On February 20, 2024, the CFTC approved a proposed rule that would apply a margin adequacy requirement to all futures commission merchants (FCMs), with respect to their customers. The new requirement—titled Regulation 1.44—is designed to ensure that an FCM does not permit a customer to withdraw funds from its account if the remaining balance would be insufficient to meet the customer’s initial margin requirements.

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FinCEN Proposes AML Requirements on Registered Investment Advisers (including Exempt Reporting Advisers)

By: Richard F. Kerr, Jennifer L. Klass, and Annabelle H. North

On 13 February 2024, the Financial Crimes Enforcement Network (FinCEN) issued a notice of proposed rulemaking (NPRM) that would impose anti-money laundering (AML) and counter-terrorist financing (CFT) requirements on Securities and Exchange Commission-registered investment advisers (the SEC, and such investment advisers, RIAs) and exempt reporting advisers (ERAs). FinCEN previously made similar rule proposals in both 2003 and 2015, which were never finalized.

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Fifth Circuit Court of Appeals Hears Oral Arguments in Industry Groups’ Ongoing Petition to Vacate Private Fund Adviser Rules

By: TJ Bright, Annabelle H. North, and Bradley D. Bostwick

On 5 February 2024, the US Fifth Circuit Court of Appeals heard oral arguments from the Securities and Exchange Commission (SEC) and industry groups representing private investment fund sponsors, in the industry groups’ ongoing petition to vacate the new private fund adviser rules (PFAR) adopted by the SEC on 23 August 2023.

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