September Regulatory Updates from Cari Hopsfenperger at Foreside.

Topics include:

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You Can’t Handle the Truth: A Few Good Enforcement Actions from the SEC and FINRA in July 2021

From Brian Rubin and Amanda Oliveira in this month’s column for NSCP Currents:

As this year marks the 30th anniversary of the filming of the movie A Few Good Men, we thought it would make sense to revisit that film, which involved “honor, code, loyalty,” trials, good guys, bad guys, and moral ambiguity. In other words, it involved most of the elements we regularly see in SEC and FINRA enforcement cases. And it involved one of the most iconic speeches ever to appear in a movie.  (For those who haven’t seen the movie, the speech involved handling—or the inability to handle—the “truth.”)

Can you handle the truth about the SEC and FINRA enforcement actions brought in July 2021. . . Read more here.

SEC Sanctions Robo Adviser for Inadequate Conflicts Disclosures, Failure to Consider Tax Impact of Proprietary ETFs

Not long after we released our recent alert titled SEC Continues Focus on Conflicts Disclosures in Enforcement Actions Totaling $106 Million in Fines and Disgorgement, the SEC entered into another consent order (the “Order”) with an internet-based registered investment adviser (“Robo Adviser”) that sanctioned the adviser for failing to provide full and fair disclosure regarding conflicts of interest relating to proprietary products, and for failing to consider tax consequences associated with trades made within an automated advisory program.[i]  This Order serves as another example of the SEC’s continuing focus on the importance of firms identifying, and then accurately disclosing, actual or potential conflicts of interest and how those conflicts could impact clients.

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Attn: RIAs Charging Performance-Based Fees, Thresholds for “Qualified Client” Increased by $100K

The Investment Advisers Act of 1940, as amended (the “Advisers Act”), generally prohibits SEC‑registered investment advisers (“RIAs”) from entering into an advisory contract that charges a performance fee to a client who is not a “qualified client” under Rule 205-3(d)(1) under the Advisers Act.[1]  Effective Monday, August 16, 2021 (the “Effective Date”), an inflation adjustment has raised two of the thresholds for determining whether a client is a “qualified client” by $100,000.

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SEC Continues Focus on Conflicts Disclosures in Enforcement Actions Totaling $106 Million in Fines and Disgorgement

The SEC recently entered into four consent orders (collectively, the “Orders” and each, an “Order”) with registered investment advisers (“RIAs” and each, an “RIA”) that sanctioned the RIAs for failures to provide full and fair disclosure regarding conflicts of interest. Notably, the Orders highlight the RIAs’ various efforts to correct disclosure issues, and the SEC’s ultimate position that each additional disclosure was still inadequate. These Orders again demonstrate the SEC’s continuing focus on ensuring firms provide full and fair disclosure of conflicts of interest, and the difficulty for practitioners in pegging what the SEC will deem a complete and accurate disclosure.

Read more here.