SEC fines alternative mutual fund adviser for improper handling of fund assets

Abstract

Purpose

To explain that the Securities and Exchange Commission (“SEC”) brought and settled charges against an investment adviser to several alternative mutual funds alleging, among other charges, failure to comply with the custody requirements of the Investment Company Act of 1940, as amended (the “1940 Act”).

Design/methodology/approach

To explain that the Securities and Exchange Commission (“SEC”) brought and settled charges against an investment adviser to several alternative mutual funds alleging, among other charges, failure to comply with the custody requirements of the Investment Company Act of 1940, as amended (the “1940 Act”).

Findings

The enforcement action serves as an important reminder for the growing number of advisers of alternative mutual funds to be mindful of specific restrictions and obligations when managing registered funds that do not apply to private funds and separate accounts. This action shows that the SEC will bring charges even when the alleged violations do not result in harm to investors.

Practical implications

The 1940 Act, the rules thereunder, and SEC staff guidance relating to alternative investment strategies are complicated and not intuitive. These standards can constrain a registered fund’s ability to employ options, futures, swaps, prime brokerage, repurchase and reverse repurchase agreements, enhanced leverage through securities lending, and other facilities. As the SEC continues to examine alternative mutual funds, advisers to these funds should remain cognizant of the obligations arising under the 1940 Act and the implementation of fund policies and procedures.

Originality/value

Practical guidance from experienced financial services lawyers.

Citation

McGrath, M. and Man, P.J. (2015), "SEC fines alternative mutual fund adviser for improper handling of fund assets", Journal of Investment Compliance, Vol. 16 No. 2, pp. 35-37. https://doi.org/10.1108/JOIC-04-2015-0028