The ‘40 Act Blog Top 10 of 2024

In 2024, registered investment companies and investment advisers saw a flurry of regulatory developments from the SEC. We have aimed to provide an overview of many of these developments through the ‘40 Act Blog. Below, we highlight our 10 most viewed ‘40 Act Blog posts in 2024:

1. SEC Settles Charges Against Firm for Disclosing MNPI on Block Trades
   • Quick Take: The SEC settled charges against a firm and the former head of the firm’s equity syndicate desk, arising out of a multi-year fraud involving the disclosure of confidential information about block trades. The firm also settled SEC charges relating to its failure to enforce its policies concerning the misuse of material non-public information (MNPI) related to block trades.
     
   
   
2. SEC Charges Five Advisers with Violations of the Marketing Rule; SEC Staff Releases Risk Alert on Marketing Rule Compliance
   • Quick Take: The SEC settled charges in separate actions against five investment advisers for violations of Rule 206(4)-1 (Marketing Rule) under the Advisers Act, including failing to adopt policies and procedures reasonably designed to ensure that hypothetical performance information provided in advertisements was relevant to the likely financial situation and investment objectives of the intended audience of each advertisement, as required under the Marketing Rule. Several days after the SEC announced the settlements, the staff of the SEC’s Division of Examinations published a Risk Alert on investment adviser compliance with the Marketing Rule.
   
   
3. SEC Settles Charges with Adviser for Failing to Disclose Conflicts of Interest
   • Quick Take: The SEC recently settled charges with an investment adviser relating to the adviser’s failure to disclose conflicts of interest to its clients concerning compensation the adviser received from an ETF investment manager, including through a sub-advisory agreement with the ETF manager.
   
   
4. SEC Settles Charges Against Private-Equity Firm for Alleged Disclosure Policy Failures
   • Quick Take: The SEC settled charges against a private-equity fund Adviser for failing to maintain and enforce policies and procedures reasonably designed to prevent the misuse of MNPI and to implement policies and procedures reasonably designed to prevent misleading communications concerning performance of the funds managed by the Adviser.
   
   
5. SEC Staff Issues FAQs On Tailored Shareholder Reports
   • Quick Take: The staff of the SEC’s Division of Investment Management recently issued responses to frequently asked questions (FAQs) covering the SEC’s adoption of rule and form amendments relating to shareholder reports. The FAQs are organized under the following topics: (1) appropriate broad-based securities market index; (2) Form N-CSR and website availability requirements; (3) binding individual shareholder reports of multiple funds; (4) electronically provided shareholder reports; and (5) compliance date and Inline XBRL issues. A summary of certain Staff responses to the FAQs is included below. 
     
   
   
6. SEC Adopts Data Privacy Rule Amendments to Regulation S-P
   • Quick Take: The SEC adopted amendments to Regulation S-P imposing new data privacy and security requirements on broker-dealers, registered investment advisers, investment companies, and transfer agents (collectively, Covered Entities). The amendments, among other things, require Covered Entities to adopt an incident response program to detect, respond to, and recover from a breach of customer information; notify affected individuals when a data breach has, or is reasonably likely to have, occurred; enhance their oversight of service providers; and maintain records documenting compliance with the amendments. The amendments become effective in 18-24 months (depending on the Covered Entity).
     
   
   
7. SEC Enforcement Action Rundown
   • Quick Take: The SEC recently announced a number of enforcement actions relating to recordkeeping failures, registration and disclosure violations, and violations of both the Marketing Rule and Custody Rule.
     
   
   
8. SEC Settles Charges Against Adviser for Improperly Splitting Legal Fees
   • Quick Take: The SEC settled charges against an investment adviser for allegedly entering into an improper legal fee-splitting arrangement with its client, an open-end fund company. According to the SEC’s Order, this arrangement resulted in the fund company paying, at least initially, a disproportionately high amount of legal fees.
     
     
9. CBOE Applies for SEC Approval to List and Trade ETF Share Classes
   • Quick Take: Cboe BZX Exchange, Inc. (CBOE) has filed an application with the SEC pursuant to Rule 19b-4 under the Exchange Act seeking approval of a proposed amendment to one of the CBOE’s listing rules which would allow issuers to offer a class of exchange-traded fund shares for existing US mutual funds. The CBOE’s application is the first by an exchange and creates a regulatory deadline within which the SEC must respond to the CBOE’s application.
   
   
10. SEC Section 13 Enforcement Sweep
    • Quick Take: The SEC recently settled charges against 34 entities and individuals, including 11 institutional investment managers, for failing to timely report information on Schedules 13D and 13G and Forms 13F and 13H, reporting holdings and transactions in public securities. Two public companies were also charged for contributing to filing failures by their officers and directors and failing to report their insiders’ filing delinquencies. All of these charges relate to beneficial ownership information about securities, and reveal the larger owners of public company shares.