K&L Review of SEC Adviser Enforcement Actions in 2016

December 9, 2016

K&L has published an excellent review of SEC enforcement actions against investment advisers in 2016.

It's notable that under the current "broken windows" approach, the SEC has been much more actively pursuing all types of violations and issues involving advisers.  The concept--derived from law enforcement--is that by observing where the broken windows are in a community, one can encourage compliance and good behavior by getting folks to repair the broken windows.  Hence, by pursuing even seemingly small violations, the SEC seeks to encourage compliance and good behavior in the adviser community.

As noted in K&L's introduction to their report, "In the SEC’s most recent fiscal year, which ended on September 30, 2016, almost one in every five enforcement actions was against an investment adviser. An entire unit in the SEC’s Division of Enforcement is focused on bringing cases against investment advisers; advisers are subject to routine and for-cause examinations by the SEC examination staff; and the Commission now has access to voluminous data regarding their activities and sophisticated technology to analyze that data. Moreover, because investment advisers are fiduciaries, the standards for establishing liability are modest: in an SEC enforcement action, intentional, knowing or reckless misconduct is not usually necessary to prove a violation of the Investment Advisers Act." 

K&L's report analyzes the enforcement actions in 17 different categories and provides a comprehensive discussion of them along with takeaways.  All in all an excellent report which all advisers should review.

Report is available here:  http://www.klgates.com/files/Publication/e8cca358-aa53-46c4-bb97-70fdc085b81f/Presentation/PublicationAttachment/589df4e2-52a6-437b-8c14-784583009353/GE_Alert_1282016.pdf