Enforcement

SEC Charges New York Private Fund Adviser and CEO With Defrauding Investors in Funds Holding SpaceX and Other Pre-IPO Shares

Summary: The SEC charged a New York-based private fund adviser and its CEO with defrauding investors in funds holding SpaceX and other pre-IPO securities. The complaint alleges that, since at least December 2021, the defendants misappropriated fund assets for personal expenses, sent investors inflated account statements, and required releases for reduced distributions. One fund forfeited a nearly $3 million SpaceX investment after the defendants allegedly failed to cure a capital call deficiency.

Why It Matters: The case reflects the SEC’s focus on misappropriation and fiduciary breaches at private fund advisers, and on pre-IPO vehicles offered to retail investors. It also treats an unmet capital call as part of the alleged misconduct.

Potential Action: Private fund advisers should test controls over fund-level expense payments, valuation and investor statements, and the release language used in distributions, and confirm that capital calls on underlying investments are tracked and funded on time.

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SEC Seeks Final Judgment Against Former Bond Manager’s Co-CIO in Cherry-Picking Case

Summary: The SEC moved for a consent final judgment against the former co-chief investment officer of a large bond manager in a case alleging that from 2021 to 2023 he delayed trade allocations until near or after futures settlement prices were set, favoring some portfolios over others. Without admitting the allegations, he would pay a $3 million penalty and accept an officer-and-director bar and antifraud injunction, subject to court approval.

Why It Matters: With the firm’s $100 million settlement in June, the SEC says $103 million would be returned to harmed investors. His separate guilty plea to obstruction, tied to testimony he gave the SEC, shows the added criminal exposure of misleading SEC staff.

Potential Action: Advisers should review trade-allocation policies, confirm that allocation timing is documented and that post-execution changes are flagged and reviewed, and test for patterns that consistently favor particular accounts.

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Rulemaking

SEC Proposes Custody Rule Changes, Including Framework for Crypto Assets

Summary: On October 1, the SEC proposed amendments to the Advisers Act and Investment Company Act custody rules, including a framework for crypto assets held by registered advisers and regulated funds. The proposal would permit self-custody in limited circumstances and add state trust companies as permitted custodians. It would also exclude certain discretionary trading from the adviser custody rule and ease independent verification for advisers with custody solely through a standing letter of authorization.

Why It Matters: The proposal would give advisers a defined path for holding crypto assets, and its reach extends beyond crypto to common arrangements such as standing letters of authorization and discretionary trading authority.

Potential Action: Advisers with client crypto exposure or standing letters of authorization should map current custody arrangements against the proposal and consider commenting. The comment period runs 60 days after Federal Register publication.

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SEC Proposes Rule Amendments to Expand Retail Access to Private Markets

Summary: On September 30, the SEC proposed amendments that would let registered advisers earn performance-based compensation from more clients, including regulated funds, modernize the interval fund framework, and replace exemptive orders with a rules-based framework for multiple share classes of closed-end funds. The SEC separately requested comment on new ways to qualify as an accredited investor, including an exam and certain professional credentials.

Why It Matters: If adopted, the changes could make it more practical for private-market managers to offer strategies through registered funds, while the accredited investor options under consideration could widen the pool of eligible investors in private offerings.

Potential Action: Advisers and managers weighing registered-fund products should assess how the performance-fee and liquidity changes would affect product design and disclosure, and consider commenting. Comment periods run 60 days after Federal Register publication.

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SEC Amends Quorum Rule So a Single Commissioner Can Act When Others Are Disqualified

Summary: On September 30, the SEC amended its quorum rule, without notice and comment, so that one commissioner constitutes a quorum on a matter when every other sitting commissioner is disqualified from it. The prior rule covered only the case where two were left to act. The change takes effect on Federal Register publication. Press reports indicate Commissioner Hester Peirce left on October 2, leaving Chairman Paul Atkins and Commissioner Mark Uyeda as the only sitting commissioners.

Why It Matters: With two commissioners in office, a recusal by one could have left the SEC unable to act on a matter under the prior rule. The SEC says the change is meant to let it continue conducting business.

Potential Action: Firms with pending exemptive applications, no-action requests, or enforcement matters should note that a single commissioner may now act where the other is recused, and should track Commission composition and any nominations.

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What Regulators Are Saying

SEC Division of Examinations Publishes New Exam Handbook

Summary: On October 1, the SEC’s Division of Examinations published “The SEC Exam Handbook: A Practical Guide on Process and Engagement,” which replaces and expands the prior examination brochure. It walks registrants through each stage of an exam, from risk assessment to the disposition letter, and offers preparation tips and ways to ask questions or give feedback.

Why It Matters: The handbook gives registrants a published reference for what examiners expect, with a stated aim of greater consistency and predictability that compliance teams can use to benchmark their own exam readiness.

Potential Action: Chief compliance officers should read the handbook, compare its stages and request practices with their exam-response procedures, and update document-gathering protocols and designated points of contact accordingly.

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In the News

IMF Says Hedge Funds’ Market Footprint Is Growing and Merits Closer Scrutiny

Summary: The IMF said on October 6 that hedge fund assets have grown to roughly $13 trillion in early 2026 from $4 trillion in 2013, largely through leverage, including synthetic leverage via derivatives. Hedge funds now account for 9% of the US Treasury market, up from 4% in 2022. The IMF described the sector as inherently opaque and urged policymakers to close data gaps. Its full report is due October 13.

Why It Matters: The report adds to official-sector interest in hedge fund leverage and Treasury market exposure, even as US regulators have proposed reducing Form PF reporting burdens.

Potential Action: Hedge fund managers should review how leverage, derivative exposure and Treasury market activity are described in investor and regulatory disclosures, and prepare for investor and counterparty questions on liquidity and risk management.

Read More Here (Reuters)

Events

SEC to Host Virtual National Compliance Outreach Seminar on November 19

Summary: The SEC’s Compliance Outreach Program will hold a virtual national seminar for investment companies and investment advisers on November 19, 2026, aimed at chief compliance officers and senior personnel. Panels will cover information security and operational resiliency, adviser and fund topics, private fund adviser topics, compliance program effectiveness, and current issues. A webcast link will be posted on SEC.gov that morning.

Why It Matters: The program is jointly sponsored by the Divisions of Examinations and Investment Management and the Enforcement Division’s Asset Management Unit, offering a direct read on staff priorities soon after the new exam handbook.

Potential Action: Chief compliance officers should calendar the seminar, compare the panel topics with their current compliance program priorities, and share relevant takeaways with senior management afterward.

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