Investment Adviser’s Enforcement Proceeding Results in Mutual Fund Industry Disqualification
On May 17, 2022, the SEC announced administrative proceedings against an investment adviser involving a fraudulent scheme to conceal the risks and performance of a complex options trading strategy that lost billions of dollars for various institutional investors. In connection with the announcement, criminal charges were filed against the adviser and three former senior portfolio managers. The adviser agreed to plead guilty to the criminal charges and settle the SEC’s administrative proceedings as part of an integrated, global resolution, including more than $1 billion to settle the SEC charges and over $5 billion in restitution.
As a result of the guilty plea—and because the SEC did not grant a waiver of disqualification under Section 9 of the Investment Company Act—the investment adviser was automatically and immediately disqualified from providing advisory services to registered funds for the next ten years. The SEC’s press release announcing the settlement stated that the adviser would exit the business of providing advisory services to registered funds, following a brief transition period to allow impacted funds to engage a new adviser.
The SEC’s press release is available here.