On November 19, 2020, the SEC’s Office of Compliance Inspections and Examinations published a risk alert providing an overview of notable compliance issues observed in registered investment advisers’ compliance programs. The alert will serve as a useful checklist for advisers seeking to identify weaknesses in their own compliance programs and
Advisors Act
Private Equity Adviser Settles with SEC for Misallocation of Internal Expenses Relating to “Third-Party Tasks”
The SEC issued an order imposing sanctions against private equity adviser Rialto Capital Management, LLC (“Rialto”) for violations of the Advisors Act relating to expense allocation. The settlement addressed Rialto’s allocation of expenses for certain “third-party tasks” performed by in-house employees, which was allowed under the relevant fund documents with consent of the limited partner advisory committee (LPAC). Yet the SEC took issue with the practice of fully allocating certain expenses to the funds rather than proportionately to co-investors, as well as the manner in which the expenses were disclosed to the LPAC for approval.
SEC Extends Registration Requirements for Investment Companies and Broker Dealers to ICOs and other Digital Assets
Fund managers take note – after over a year of warning, this month the SEC announced a pair of settlement orders with respect to registration requirements for a fund and broker dealer operating in the crypto and digital assets space. It was the agency’s first ever enforcement actions applying the investment company and broker-dealer registration provisions of the securities laws to businesses involved in digital securities. As we’ve written on Proskauer’s Blockchain and the Law blog, we expect to see the SEC continue to expand its oversight of digital assets as securities.