SEC Brings 9(a) Order Against Affiliates of an Investment Company Complex

July 7, 2015

The SEC brought an enforcement action against Macquarie Capital Investment Management LLC, an adviser to a number of mutual funds, Delaware Management Company, Delaware Investments Fund Advisers, Four Corners Capital Management, LLC (FCCM), Macquarie Funds Management Hong Kong Limited, and Delaware Distributors, L.P. (collectively, the Macquarie Affiliates), each of which provide services to mutual funds, pursuant to Section 9(f) of the 1940 Act

On April 1, 2015, the United States District Court for the Southern District of New York entered final consent judgments in an SEC action that permanently enjoined Macquarie Capital (USA) Inc. (MCUSA), an affiliate of the above entities, and its two former bankers from violating Sections 17(a)(2) and 17(a)(3) of the Securities Act (Injunction)  This SEC action directly impacted the ability of the Macquarie Entities to provide advisory and distribution services to the Funds.

Section 9(a)(2) of the 1940 provides that a person may not serve or act as an investment adviser of any registered investment company, or as a principal underwriter for any registered open-end investment company (Fund Service Activities), if such person is by reason of any misconduct “permanently or temporarily enjoined by order, judgment, or decree of any court of competent jurisdiction . . . from engaging in or continuing any conduct or practice in connection with . . . the purchase or sale of any security.”

Pursuant to Section 9(a)(2) of the Investment Company Act, the entry of the Injunction disqualified MCUSA from engaging in Fund Service Activities as of April 1, 2015. Section 9(a)(3) of the Investment Company Act extends the prohibitions of Section 9(a)(2) to any company, any “affiliated person” of which is disqualified from performing Fund Service Activities under the provisions of Section 9(a)(2).

As a result of the entry of the injunction against MCUSA, Sections 9(a)(2) and 9(a)(3) prohibited the Macquarie Affiliates from engaging in Fund Service Activities as of April 1, 2015. The SEC found that each of the Macquarie Affiliates was engaged in one or more Fund Service Activities as of April 1, 2015 and, notwithstanding the entry of the Injunction on that date, continued to engage in one or more Fund Service Activities after April 1, 2015. They did not contact the SEC staff to begin the process of obtaining exemptive relief from Section 9(a)(2) and 9(a)(3) until April 7, 2015. As a result, they violated Section 9(a) of the 1940 Act.

On May 15, 2015, the SEC granted temporary exemptive relief from Section 9(a) of the 1940 Act with respect to the Injunction. Nevertheless, each of the Macquarie Affiliates were order to pay a civil money penalty in the amount of $20,000 for violating Section 9(a).

Click to access the enforcement action.


Investment Advisers, Investment Companies