Muddy disclosures continue to attract the wrong kind of attention

Disclosure of conflicts of interest has long been an area of enforcement emphasis by the SEC.  Last year, Julie Riewe, Co-Chief of the Asset Management Unit within the Division of Enforcement stated:

In nearly every ongoing matter in the Asset Management Unit, we are examining, at least in part, whether the adviser in question has discharged its fiduciary obligation to identify its conflicts of interest and either (1) eliminate them, or (2) mitigate them and disclose their existence to boards or investors. Over and over again we see advisers failing properly to identify and then address their conflicts.[1]

Aggressive enforcement actions against investment advisers and their compliance officers for failing to fully disclose existing conflicts continues.  On May 26, 2017, a Connecticut Federal Court sided with the SEC where the regulator had alleged a firm and its CEO had failed to disclose to clients that moving assets into newly-created mutual funds created and managed by the defendants would “increase the clients’ total advisory fees paid to the adviser without changing the clients’ investment strategy.”  Significantly, the SEC brought this action even though the firm’s Form ADV disclosed that clients may pay mutual fund fees in addition to the usual management fee paid to the investment adviser for the new funds and that the adviser might receive additional compensation if the clients invested in the new funds.  See SEC v. Momentum Investment Partners LLC (D/B/A Avatar Investment Management) and Ronald J. Fernandes, (No. 16-cv-00832–VLB).

Cases involved degrees of disclosure are among the most challenging to fight – the Court in Momentum made clear, an adviser should identify and disclose in its Form ADV all sources of compensation to ensure that any potential or actual conflicts of interest are fully disclosed to clients clearly and unambiguously in order to minimize litigation risk.  In other words, disclose the compensation issue, don’t assume that a vague or non-committal reference will be adequate.  Couching the disclosure in language that implies compensation “may” or “might” be paid will not be sufficient, and may expose the adviser and its management to significant penalties and fines.

The Hamburger Law Firm continues to represent advisers undergoing regulatory investigations for this and other types of potential compliance-related infractions, working to bring them to as efficient a conclusion as possible.

[1] https://www.sec.gov/news/speech/conflicts-everywhere-full-360-view.html

 

Comments are closed.

Muddy disclosures continue to attract the wrong kind of attention

Disclosure of conflicts of interest has long been an area of enforcement emphasis by the SEC.  Last year, Julie Riewe, Co-Chief of the Asset Management Unit within the Division of Enforcement stated:

In nearly every ongoing matter in the Asset Management Unit, we are examining, at least in part, whether the adviser in question has discharged its fiduciary obligation to identify its conflicts of interest and either (1) eliminate them, or (2) mitigate them and disclose their existence to boards or investors. Over and over again we see advisers failing properly to identify and then address their conflicts.[1]

Aggressive enforcement actions against investment advisers and their compliance officers for failing to fully disclose existing conflicts continues.  On May 26, 2017, a Connecticut Federal Court sided with the SEC where the regulator had alleged a firm and its CEO had failed to disclose to clients that moving assets into newly-created mutual funds created and managed by the defendants would “increase the clients’ total advisory fees paid to the adviser without changing the clients’ investment strategy.”  Significantly, the SEC brought this action even though the firm’s Form ADV disclosed that clients may pay mutual fund fees in addition to the usual management fee paid to the investment adviser for the new funds and that the adviser might receive additional compensation if the clients invested in the new funds.  See SEC v. Momentum Investment Partners LLC (D/B/A Avatar Investment Management) and Ronald J. Fernandes, (No. 16-cv-00832–VLB).

Cases involved degrees of disclosure are among the most challenging to fight – the Court in Momentum made clear, an adviser should identify and disclose in its Form ADV all sources of compensation to ensure that any potential or actual conflicts of interest are fully disclosed to clients clearly and unambiguously in order to minimize litigation risk.  In other words, disclose the compensation issue, don’t assume that a vague or non-committal reference will be adequate.  Couching the disclosure in language that implies compensation “may” or “might” be paid will not be sufficient, and may expose the adviser and its management to significant penalties and fines.

The Hamburger Law Firm continues to represent advisers undergoing regulatory investigations for this and other types of potential compliance-related infractions, working to bring them to as efficient a conclusion as possible.

[1] https://www.sec.gov/news/speech/conflicts-everywhere-full-360-view.html

 

Comments are closed.

Muddy disclosures continue to attract the wrong kind of attention

Disclosure of conflicts of interest has long been an area of enforcement emphasis by the SEC.  Last year, Julie Riewe, Co-Chief of the Asset Management Unit within the Division of Enforcement stated:

In nearly every ongoing matter in the Asset Management Unit, we are examining, at least in part, whether the adviser in question has discharged its fiduciary obligation to identify its conflicts of interest and either (1) eliminate them, or (2) mitigate them and disclose their existence to boards or investors. Over and over again we see advisers failing properly to identify and then address their conflicts.[1]

Aggressive enforcement actions against investment advisers and their compliance officers for failing to fully disclose existing conflicts continues.  On May 26, 2017, a Connecticut Federal Court sided with the SEC where the regulator had alleged a firm and its CEO had failed to disclose to clients that moving assets into newly-created mutual funds created and managed by the defendants would “increase the clients’ total advisory fees paid to the adviser without changing the clients’ investment strategy.”  Significantly, the SEC brought this action even though the firm’s Form ADV disclosed that clients may pay mutual fund fees in addition to the usual management fee paid to the investment adviser for the new funds and that the adviser might receive additional compensation if the clients invested in the new funds.  See SEC v. Momentum Investment Partners LLC (D/B/A Avatar Investment Management) and Ronald J. Fernandes, (No. 16-cv-00832–VLB).

Cases involved degrees of disclosure are among the most challenging to fight – the Court in Momentum made clear, an adviser should identify and disclose in its Form ADV all sources of compensation to ensure that any potential or actual conflicts of interest are fully disclosed to clients clearly and unambiguously in order to minimize litigation risk.  In other words, disclose the compensation issue, don’t assume that a vague or non-committal reference will be adequate.  Couching the disclosure in language that implies compensation “may” or “might” be paid will not be sufficient, and may expose the adviser and its management to significant penalties and fines.

The Hamburger Law Firm continues to represent advisers undergoing regulatory investigations for this and other types of potential compliance-related infractions, working to bring them to as efficient a conclusion as possible.

[1] https://www.sec.gov/news/speech/conflicts-everywhere-full-360-view.html

 

Comments are closed.

Muddy disclosures continue to attract the wrong kind of attention

Disclosure of conflicts of interest has long been an area of enforcement emphasis by the SEC.  Last year, Julie Riewe, Co-Chief of the Asset Management Unit within the Division of Enforcement stated:

In nearly every ongoing matter in the Asset Management Unit, we are examining, at least in part, whether the adviser in question has discharged its fiduciary obligation to identify its conflicts of interest and either (1) eliminate them, or (2) mitigate them and disclose their existence to boards or investors. Over and over again we see advisers failing properly to identify and then address their conflicts.[1]

Aggressive enforcement actions against investment advisers and their compliance officers for failing to fully disclose existing conflicts continues.  On May 26, 2017, a Connecticut Federal Court sided with the SEC where the regulator had alleged a firm and its CEO had failed to disclose to clients that moving assets into newly-created mutual funds created and managed by the defendants would “increase the clients’ total advisory fees paid to the adviser without changing the clients’ investment strategy.”  Significantly, the SEC brought this action even though the firm’s Form ADV disclosed that clients may pay mutual fund fees in addition to the usual management fee paid to the investment adviser for the new funds and that the adviser might receive additional compensation if the clients invested in the new funds.  See SEC v. Momentum Investment Partners LLC (D/B/A Avatar Investment Management) and Ronald J. Fernandes, (No. 16-cv-00832–VLB).

Cases involved degrees of disclosure are among the most challenging to fight – the Court in Momentum made clear, an adviser should identify and disclose in its Form ADV all sources of compensation to ensure that any potential or actual conflicts of interest are fully disclosed to clients clearly and unambiguously in order to minimize litigation risk.  In other words, disclose the compensation issue, don’t assume that a vague or non-committal reference will be adequate.  Couching the disclosure in language that implies compensation “may” or “might” be paid will not be sufficient, and may expose the adviser and its management to significant penalties and fines.

The Hamburger Law Firm continues to represent advisers undergoing regulatory investigations for this and other types of potential compliance-related infractions, working to bring them to as efficient a conclusion as possible.

[1] https://www.sec.gov/news/speech/conflicts-everywhere-full-360-view.html

 

Comments are closed.