In recognition of the disruptions caused by COVID-19, the Division of Investment Management (the “Division”) of the Securities and Exchange Commission (the “SEC”) will require interested persons to submit written hearing requests for filed exemptive applications by sending an e-mail to the SEC’s Secretary at Secretarys-Office@sec.gov rather than sending a request to the SEC by physical mail. The Division will reflect this e-mail requirement in forthcoming notices. In addition, the Division is offering applicants the option to provide an e-mail address to be included in the SEC’s notice of their application so that interested persons may serve applicants by e-mail (instead of by mail or personally).
Continue Reading The Division of Investment Management Responds to COVID-19’s Impact on Requests for Hearings on Exemptive Applications

On March 12, 2020, the U.S. Securities and Exchange Commission announced a settlement with an exempt reporting adviser and its two founders for failure to disclose several conflicts of interest and failure to take measures required by the private fund’s offering documents.

The SEC is examining exempt reporting advisers, and although not subject to all

On March 25, 2020, the Securities and Exchange Commission (“SEC”) published new relief that supersedes its March 13, 2020 order for investment advisers filing and delivery obligations of Form ADV and Form PF. We have updated our original post to reflect the relief provided in the SEC’s new March 25 order. This new order extends

In our previous post, we reviewed how the financial markets’ reaction to the COVID-19 pandemic requires mutual funds to review, and possibly reclassify, the liquidity of their investments. As liquidity and valuation are often two sides of the same coin, factors that may lead to reclassifying a security’s liquidity may also raise questions concerning how to value the security for purposes of calculating a mutual fund’s net asset value (“NAV”). This post discusses when this may be the case.
Continue Reading Navigating Mutual Funds in Rough Markets—Valuation

During a recent webinar, Steve explained that the market and trading conditions caused by the COVID-19 pandemic might be “reasonably expected to materially affect one or more of [a mutual fund’s] investments’ classifications” for purposes of the fund’s liquidity risk management program (its “LRM Program”). In this circumstance, Rule 22e-4 under the Investment Company Act of 1940 requires more frequent review of these classifications. This post describes how a rough market may require a mutual fund (other than a money market fund or in-kind exchange traded fund) to reclassify an investment’s liquidity classification.
Continue Reading Navigating Mutual Funds in Rough Markets—Liquidity

On March 25, 2020, the Securities and Exchange Commission (“SEC”) issued an order granting temporary relief for filing and delivery obligations of Form ADV and Form PF for investment advisers whose operations may be affected by the coronavirus. This relief supersedes the SEC’s previous order from March 13. The March 25 order extends the time of the relief to June 30, 2020, and eliminates the requirement for the adviser to provide the SEC and clients with a description of the reasons why the adviser is relying on the order and an estimated date by which the required filing will occur.

The relief applies to both registered investment advisers and exempt reporting advisers. In providing the relief, the SEC explained that it is necessary “[i]n light of our current understanding of the nationwide scope of COVID-19’s disruptions to businesses and everyday activities, and the uncertainty as to the duration of these disruptions.”

Continue Reading SEC Provides Relief For Form ADV and Form PF Filing and Delivery Obligations in Response to COVID-19 (Updated 4/2)

On two separate days last week and again this morning, markets hit critical circuit breaker levels triggering U.S. exchanges to halt trading. Such large market declines remind us of the prospect of an early close if the S&P 500 falls more than 20% from the previous day’s close. If such an event occurs, open-end investment companies (“mutual funds”) will need to either (1) calculate their net asset values (“NAVs”) at the time of the early close or (2) find alternative pricing sources for calculating their NAVs as of 4:00 pm (ET). The options available will depend in part on the mutual fund’s prospectus disclosure.
Continue Reading Navigating Mutual Funds in Rough Markets—Preparing for an Early Close

On June 5, 2019, the U.S. Securities and Exchange Commission (“SEC”) adopted a package of rules and interpretations relating to the standards of conduct for broker-dealers and investment advisers, including a new “best interest” rule for broker-dealers. The package was adopted by a 3-1 vote, with Commissioner Robert J. Jackson Jr. as the lone dissenter. Chairman Jay Clayton, who supported the package, stated that the SEC was not adopting a uniform fiduciary rule for broker-dealers and investment advisers. Instead, Chairman Clayton explained that “Regulation Best Interest incorporates fiduciary principles, but is appropriately tailored to the broker-dealer relationship model and will preserve retail investor access and choice.” Chairman Clayton, as well as the SEC’s press release, emphasized that Regulation Best Interest cannot be satisfied by disclosure alone, but rather through compliance with each of the rule’s four substantive obligations.

The actions taken on June 5 include the following:


Continue Reading SEC Adopts Package of Reforms Aimed at Raising the Standard of Conduct for Brokers and Clarifying an Investment Adviser’s Fiduciary Duty

On December 21, 2018, the U.S. Securities and Exchange Commission (“SEC”) announced enforcement actions against two robo-advisers, Wealthfront Advisors LLC (“Wealthfront”) and Hedgeable Inc. (“Hedgeable”), for making false statements about investment products and publishing misleading advertising. “Robo-advisers” are investment advisers that provide automated, software-based portfolio management services. In a press release related to these actions, the Chief of the SEC Enforcement Division’s Asset Management Unit stated that “[t]echnology is rapidly changing the way investment advisers are able to advertise and deliver their services to clients … [but] [r]egardless of their format … all advisers must take seriously their obligations to comply with the securities laws, which were put in place to protect investors.” These enforcement actions, the first by the SEC against robo-advisers, highlight the nuanced risks and requirements for robo-advisers under U.S. securities laws.


Continue Reading SEC Brings First Enforcement Actions against Robo-Advisers

This post continues my recap of where things stand regarding the treatment of tokens, coins, cryptocurrencies, and other digital assets under the federal securities laws. My prior post discussed actions and statements made by the SEC in 2017. This post reviews significant enforcement actions and statements this year prior to the recent Coburn enforcement action.
Continue Reading 2018 Recap: Tokens, Coins, Cryptocurrencies, and Other Digital Assets under the Federal Securities Laws