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.
Monthly Archives: August 2021
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. 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.
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.
Indiana Jones and Raiders of the Lost Enforcement Actions: SEC and FINRA Enforcement from June 2021
From Brian Rubin and Sarah Sallis in this month’s column for NSCP Currents:
Forty years ago, in Raiders of the Lost Ark, the world was introduced to Indiana Jones, who hunted for the Lost Ark of the Covenant, while chasing and being chased by Nazis. While Raiders and the other Indy movies were not about investments (as that word is used in common parlance), the first movie did involve extremely valuable gold in its opening sequence, in the form of the fictitious Golden Idol. In addition to treasures, the Indiana Jones movies also concerned good v. bad, fighting, adventure, snakes, and some humor. In other words, in many respects, they are similar to enforcement actions (other than the snakes) (although we do know some people who might be considered snakes).
New Limits for Qualified Clients
The SEC adjusted the definition of “qualified clients,” becoming effective on August 16, 2021, pursuant to the Dodd-Frank Act of 2010, requiring such an adjustment for inflation every five years. Investment Advisers Act of 1940 Section 205(a)(1) prohibits an RIA from charging a client a performance-based fee unless the client is a qualified client having a particular new work.