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Written by Mark Buckley-Jones

Continuing their tight enforcement of firms transgressing regulatory requirements, the U.S. Securities and Exchange Commission (“SEC”) recently issued fines totalling more than $27.6 million on three registered investment advisers (“RIAs”).

RIA to private fund settles for $1.6 million for violating antifraud and compliance provisions of the Advisers Act

Private equity adviser American Infrastructure Funds (“AIF”) recently agreed to pay more than $1.6 million to settle charges resulting from its acceleration of portfolio company monitoring fees, for transferring a private fund asset from funds nearing the end of their term to a new fund, and for loaning money from one private fund to another private fund advised by an affiliate.

The SEC’s order found that AIF violated antifraud and compliance provisions of the Advisers Act.   Without admitting or denying the SEC’s findings, AIF agreed to a cease-and-desist order and censure and to pay a $1.2 million penalty as well as $445,460 in disgorgement and prejudgment interest to investors.

RIA to pay $25 million for AML violations and misstatements regarding ESG investments

The SEC recently charged registered investment adviser DWS Investment Management Americas Inc. (“DIMA”), a subsidiary of Deutsche Bank AG, in two separate enforcement actions, one addressing its failure to develop a mutual fund Anti-Money Laundering (AML) program, and the other concerning misstatements regarding its Environmental, Social, and Governance (ESG) investment process.

In the AML action, the SEC’s order finds that DIMA caused the mutual funds it advised to violate Rule 38a-1 under the Investment Company Act. In the ESG misstatements action, the SEC’s order finds that DIMA violated Sections 206(2) and 206(4) of the Advisers Act and Rules 206(4)-7 and 206(4)-8 thereunder. Without admitting or denying the SEC’s findings, DIMA agreed to a cease-and-desist order and a $6 million penalty in the AML action; and to a cease-and-desist order, censure, and a $19 million penalty in the ESG misstatements action, totalling $25 million.

RIA to pay $1 million for material misstatements and omissions in marketing materials

The SEC recently instituted public administrative and cease-and-desist proceedings against Wellesley Asset Management, Inc. (“WAM”).

This matter arises from material misstatements and omissions in marketing materials by WAM to certain of its advisory clients and prospective clients concerning an index (the “WAM Index”) created by WAM in January 2013 to depict the performance of its convertible bond investment strategy from January 2000 forward.

Specifically, the SEC’s order finds that WAM failed adequately to disclose the hypothetical nature of the index, failing to state that WAM didn’t use a model to make investment decisions and omitting that the hypothetical portfolio excluded non-convertible bonds for a period from 2002 to 2012.

The SEC’s order found that WAM wilfully violated Sections 206(2) and 206(4) of the Advisers Act. Without admitting or denying the SEC’s findings, WAM agreed to pay a civil money penalty in the amount of $1 million.

These are just a few notable recent SEC enforcements that display the SEC’s active policing of RIAs’ regulatory obligations. Such transgressions may easily be avoidable through expert advice from a reputable alternative investment management regulatory compliance firm.

Click to find out more about our SEC compliance consulting services and how we can mitigate your risk of SEC enforcement action.


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