Stinson Leonard Street Dodd Frank

MAKING SENSE OF DODD-FRANK

The Dodd-Frank Act has broad and deep implications that will touch every corner of financial services and multiple other industries. This site, developed and maintained by attorneys at Stinson Leonard Street, is dedicated to making sense of this complex legislation and helping businesses understand how it will affect them specifically. Our Bloggers »

Dodd-Frank

SEC Charges 13 Private Fund Advisers for Failure to File Form PF

by   |   June 2, 2018

The SEC announced settlements with 13 registered private fund investment advisers who repeatedly failed to provide required information that the agency uses to monitor risk. In SEC parlance, private funds are generally hedge funds and private equity funds that are required to register with the SEC. While I do not want to question the efforts of the enforcement staff, this looks like it is likely that a robo-cop generated a list of targets based on other filings the targets made with the SEC.

According to the SEC’s orders, the advisers failed to file annual reports on Form PF informing the agency about the private funds they advise, including the amount of assets under management, fund strategy, performance, and use of borrowed money and derivatives. Private fund advisers managing $150 million or more of assets have been required to make annual filings on Form PF since 2012.  The orders found that the 13 advisers were delinquent in their filings over multi-year periods.

The SEC uses Form PF data to monitor industry trends, inform rulemaking, identify compliance risks, and target examinations and enforcement investigations. The SEC publishes quarterly reports with aggregated information and statistics derived from Form PF data to inform the public about the private fund industry.  It also provides Form PF data to the Financial Stability Oversight Council to help it evaluate systemic risks posed by hedge funds and other private funds.

The SEC’s orders find that the advisers violated the reporting requirements of the Investment Advisers Act of 1940. Without admitting or denying the findings, the advisers agreed to be censured, to cease and desist, and to each pay a $75,000 civil penalty.  During the course of the SEC’s investigation, the advisers also remediated their failures by making the necessary filings.

It is likely there will be more enforcement actions in this area. The investigation may have turned up more private funds that did not file a Form PF but have additional compliance deficiencies or other private funds that have not remediated their failure like the settling group.