News and Analysis Related to Global Enforcement, White-Collar, and Regulatory Trends and Developments

SEC Settles With Private Funds For Rule 204(b)-1 Disclosure Violations

SEC Settles With Private Funds For Rule 204(b)-1 Disclosure Violations

On June 1, 2018, the U.S. Securities and Exchange Commission (SEC) issued apress releaseannouncing settlements for $75,000 each with 13 private fund advisors for violating their disclosure obligations under Rule 204(b)-1 under the Investment Advisers Act of 1940.  Rule 204(b)-1, adopted to increase transparency in the U.S. financial system and identify risks to financial stability, implemented provisions of Title IV of the Dodd-Frank Act and requires that SEC-registered investment advisers with at least $150 million in private fund assets under management file Form PF with the SEC.

The information contained in Form PF provides both the SEC and the Financial Stability Oversight Council (FSOC) with information about the basic operations and strategies of private funds and establishes a baseline picture of potential systematic risk in the private fund industry.  The SEC and the FSOC use the information contained in Form PF to identify private funds that merit further analysis and determine whether more stringent regulation of the private fund industry is appropriate.  In addition, the SEC aggregates and publishes information from Form PF to inform the public about the private fund industry.

In settling the Rule 204(b)-1 violations, the SEC noted that many of the private fund advisors had failed to file the required Form PF for many years and required that the settling firms remediate their Rule 204(b)-1 violations by making the necessary filings.  The SECs enforcement of Rule 204(b)-1 filing requirements is a further illustration that the SEC is willing to use the additional tools granted to it by Dodd-Frank to ensure greater transparency in the private fund industry and the importance of such information to the SEC when determining its own examination and review priorities.  In addition, while this does not, on its own, portend a return to the broken windows enforcement policy of the last Commission, it is worth noting that the SEC remains willing to bring enforcement actions for non-fraud technical violations, particularly where the behavior at issue demonstrates a long-running flouting of basic informational requirements.

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