Adviser Effects Cross Trades that Violate the Advisers Act and 1940 Act

September 23, 2016

The SEC brought charges against Aviva Investors Americas, LLC (AINA), a registered investment adviser, for making improper cross trades. Beginning in March 2010 and through December 2011, the SEC found that AINA arranged cross trade transactions in which three of AINA’s traders (Traders) sold fixed-income securities from certain AINA advisory client accounts to counterparty broker-dealers, and then the next day repurchased the same securities from the same broker-dealers for the accounts of certain other AINA advisory clients. The SEC stated that the Traders and the registered representatives at the broker-dealers negotiated the sales and repurchases of the securities at the same time. Approximately 137 of the cross trades were effected between AINA’s registered investment company clients (RICs) and certain of AINA’s other clients who were affiliated persons of a RIC or affiliated persons of an affiliated person of a RIC, including insurance companies owned by AINA’s parent company, Aviva plc (AINA Insurance Clients), and pooled vehicles not owned by AINA or its parent (Private Fund Clients).

During the relevant period, an entity under common control with AINA was the sole shareholder of the RIC clients. As a result of these trades, AINA caused certain of its advisory clients to conduct trades with affiliates unwittingly in violation of Sections 17(a)(1) and (a)(2) of the Investment Company Act of 1940. An additional 24 trades were effected between AINA Insurance Clients and Private Fund Clients. Aviva plc owned the AINA Insurance Clients and, therefore, AINA was acting as principal for trades involving those clients. As a result of these additional 24 trades, AINA conducted principal trades in violation of Section 206(3) of the Advisers Act. AINA’s violations were caused in part by its failure to adopt and implement adequate policies and procedures to prevent unlawful cross and principal trading effectuated by its trading personnel.

Click Aviva Investors Americas, LLC, Investment Advisers Act Rel. No. 4534 (September 23, 2016) to access the enforcement action.