United States: The SEC Targets Private Fund Advisers For Repeated Delinquent Filings

On June 1, 2018, the Securities and Exchange Commission (SEC) issued a stern warning to registered investment advisers who manage private funds – and frankly to all registrants – that ongoing delinquent filings may trigger enforcement proceedings. Specifically, the SEC announced settled orders with 13 private fund advisers for failing to file their respective Form PFs.¹ Pursuant to Rule 204(b)-1 of the Investment Advisers Act of 1940 (Advisers Act), registered investment advisers who manage funds with assets under management of $150 million or more must file a Form PF with the SEC that identifies, among other things, the private funds they advise, the amount of assets under management, the fund's strategy and performance, and the use of leverage and derivatives.² As indicated in the release accompanying the settled orders, the SEC uses this information for its various initiatives, including monitoring risks for rulemaking, examination and enforcement.

The no-admission orders imposed the same sanctions for each private fund adviser's violation of the reporting requirement of the Advisers Act. In particular, each order imposed a civil penalty of $75,000 while also recognizing that each adviser remediated its reporting failure by making the necessary filings. Notably, these enforcement actions involved advisers of various sizes – with assets under management ranging from approximately $200 million to $2.7 billion, and two to five years of delinquent Form PFs. The variety of private fund advisers subject to these orders suggests that the SEC intends to strictly enforce this requirement to support Chair Jay Clayton's goal of making the SEC more data-driven.³ This apparent intention also is bolstered by the fact that the enforcement actions all appear to stem from examinations by the SEC's Office of Compliance Inspections and Examinations (OCIE).

Given the announcement of these settled orders and the ease with which delinquent or deficient filings may be identified by OCIE, private fund advisers should heed the SEC's encouragement "to take a fresh look at whether they are meeting their reporting obligations and adjust their compliance programs accordingly."⁴

Footnotes

1 SEC Charges 13 Private Fund Advisers for Repeated Filing Failures, SEC Immediate Rel. No. 2018-100 (June 1, 2018), https://www.sec.gov/news/press-release/2018-100.

2 Reporting by Investment Advisers to Private Funds and Certain Commodity Pool Operators and Commodity Trading Advisors on Form PF, SEC and CFTC Joint Final Rule (Oct. 31, 2011), https://www.sec.gov/rules/final/2011/ia-3308.pdf.

3 Chairman Jay Clayton, Testimony on "Oversight of the U.S. Securities and Exchange Commission" Before the Senate Committee on Banking, Housing and Urban Affairs (Sept. 26, 2017), https://www.sec.gov/news/testimony/testimony-clayton-2017-09-26.

4 SEC Charges 13 Private Fund Advisers for Repeated Filing Failures, SEC Immediate Rel. No. 2018-100 (June 1, 2018), https://www.sec.gov/news/press-release/2018-100.

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