If the first few months of the new SEC administration has shown anything, it is that investment advisers should expect the SEC to remain active in its enforcement of the Investment Advisers Act. Despite an overall slowdown in enforcement actions this past fiscal year, the Enforcement Division continued to pursue investment advisers for a variety of different violations, such as the custody rule, marketing rule, Rule 105, deficient policies and procedures, and certain negligence-based conduct involving evergreen issues like conflicts of interest and fees.[1]
Following Chairman Paul Atkins’s directive, the SEC is likely to focus on bread-and-butter securities law violations involving market participants who “lie, cheat, and steal” and on the most vulnerable investors, such as retail investors and seniors. As a result, investment advisers can expect the SEC to focus its efforts on core violations of the Advisers Act, including Sections 206(1) and (2), Section 207,[2] and Rule 206(4)-8 claims, and less attention on novel legal theories that might be seen as second-guessing management or stifling innovation.
A few themes have emerged as to the type of conduct the SEC’s enforcement regime may focus on after the shutdown.