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The Year In Review: SEC Enforcement Actions Against Investment Advisers

The Securities and Exchange Commission’s enforcement program is highly focused on investment advisers for an obvious reason: they manage more than $67 trillion in assets for approximately 30 million clients.[1] In addition, because the SEC examines a far smaller percentage of investment advisers than broker-dealers, and there is no self-regulatory organization, like the Financial Industry Regulatory Authority, that also regulates investment advisers, enforcement plays a prominent role in sending a message to the investment management industry about the areas of concern to the Commission.

In recent years, it has not been unusual for the SEC to bring more than a hundred cases against investment advisers in a single year.[2] In the SEC’s most recent fiscal year, which ended on September 30, 2016, almost one in every five enforcement actions was against an investment adviser. An entire unit in the SEC’s Division of Enforcement is focused on bringing cases against investment advisers; advisers are subject to routine and for-cause examinations by the SEC examination staff; and the Commission now has access to voluminous data regarding their activities and sophisticated technology to analyze that data. Moreover, because investment advisers are fiduciaries, the standards for establishing liability are modest: in an SEC enforcement action, intentional, knowing or reckless misconduct is not usually necessary to prove a violation of the Investment Advisers Act. 

We discuss the Commission’s 2016 enforcement actions against investment advisers under the categories listed below, which are similar but not identical to the categories we used in articles reviewing the Commission’s enforcement programs in 2014 and 2015:[3]

  1. Conflicts of Interest

  2. Fees and Allocations of Expenses

  3. Trade Allocations

  4. Best Execution

  5. Principal Trades and Agency Cross Trades

  6. Insider Trading 

  7. Valuation of Securities

  8. Disclosures Related to Performance, Assets under Management, and the Adviser’s Background

  9. Failure to Disclose Changes in Investment Strategy

  10. Disclosures to the SEC and to Issuers Rather than to Clients

  11. Failure to Register as an Investment Adviser or Broker-Dealer

  12. Misappropriation 

  13. Custody Violations

  14. Safeguarding Client Information

  15. Business Continuity

  16. Foreign Corrupt Practices Act Violations

  17. Firm Procedures and Individual Supervision

At the end of each section, we provide one or more key “takeaways.”  After the section on procedures and supervision, we include a checklist of questions that advisers may wish to ask about their own practices in light of these actions.  Finally, we conclude with a few brief observations about the enforcement program and an educated guess about the program under a new administration.

[1] See Investment Advisers Act Release No. 4439 at 5 (June 28, 2016).

[2] For the Commission’s fiscal year ended September 30, 2016, it brought 160 actions involving investment advisers or investment companies, including 98 independent or standalone actions involving investment advisers or investment companies. See SEC Press Release, “SEC Announces Enforcement Results for FY 2016,” (Oct. 11, 2016). These were the most enforcement cases brought against investment advisers in a single year.

[3] See Jon Eisenberg, “8 Types of SEC Investment Adviser Actions in 2015,” Law360 (Jan. 5, 2016); “8 More Types of SEC Investment Adviser Actions in 2015,” Law360 (Jan. 6, 2016); “2014 SEC and FINRA Enforcement Actions Against Broker-Dealers and Investment Advisers,” Harvard Law School Forum on Corporate Governance and Financial Regulation,” (Dec. 24, 2014).

Copyright 2019 K & L Gates


About this Author

Jon Eisenberg, KL Gates Law Firm, Government Enforcement Attorney

on Eisenberg is a partner in the firm’s Washington, D.C. office. He focuses on representing financial institutions and individuals in enforcement matters, litigation, and internal investigations.

Professional Background
After leaving the SEC’s Office of General Counsel, Mr. Eisenberg spent roughly half his career in private practice and half in senior in-house positions. He served as General Counsel for UBS Wealth Management Americas, where he headed the legal department responsible for regulatory relationships...