Enforcement

SEC Charges Fund Manager with Ponzi-Like Hedge Fund Fraud

Summary: The SEC filed a civil action against two investment advisers, alleging he raised about $2.7 million from more than 25 investors, many families, neighbors, and friends, by pitching a day-trading hedge fund and high-yield notes, then misappropriated roughly $966,000 for personal use and used about $1.1 million for Ponzi-like redemption and interest payments. Investors allegedly lost more than $1.5 million.

Why it matters: This is a classic example of affinity fraud wrapped in a “friends and family” hedge-fund wrapper, with the SEC charging violations of Securities Act §17(a), Exchange Act §10(b)/Rule 10b-5, and Advisers Act §§206(1), 206(2), and 206(4) (and Rule 206(4)-8). It underscores that even relatively small private funds and side-note programs are squarely within the SEC’s enforcement crosshairs when disclosures, use of proceeds, and performance reporting do not match reality.

Potential action: Managers should review offering materials, side-letter and note programs, and marketing decks to confirm that use of proceeds, strategy, liquidity, and performance claims are precise and supportable. Firms should also stress-test their controls around related-party capital raises, supervision of founder-led trading, and documentation of performance communications to investors.

Read More Here(SEC)

SolarWinds Cyber Disclosure Case Dismissed — Key Precedent for Material Risk

Summary: The U.S. Securities and Exchange Commission dismissed its lawsuit against SolarWinds Corp., along with former CISO Timothy G. Brown, with prejudice. The original case, filed in 2023, alleged the firm misled investors regarding its cybersecurity controls and failed to adequately disclose the 2020 SUNBURST cyberattack. Prior court rulings in 2024 had already eliminated most claims, including unprecedented efforts to categorize cybersecurity failures as internal accounting-control violations, leaving only disclosure-based claims, which the regulator ultimately declined to pursue.

Why it matters: The dismissal reinforces a critical point for registered investment advisers and private fund managers: regulatory cyber enforcement may evolve, but material-risk disclosure obligations do not. The decision highlights that overreaching internal-control theories may face resistance in court, yet precise and supportable investors and regulator-facing disclosures on material cyber risks remain a durable expectation for firms operating pooled vehicles or advising on alternative strategies.

Potential action: Managers should revisit cybersecurity risk narratives in offering materials, Form ADV responses, and vendor due diligence questionnaires to ensure disclosures emphasize materiality, timing, and substantiation. Firms leaning on third-party software or structured investment channels should also document how vendor cyber incidents would be escalated and disclosed if deemed material, treating the SolarWinds outcome as confirmation that while legal theories may shift, the duty to disclose real, material cyber risks in clear and defensible terms remains unchanged.

Read More Here (MWE)

SEC Probes a Broker Dealer Over Private Credit Exposure to Bankrupt First Brands

Summary: Reuters reports that the SEC is investigating a registered broker dealer firm over whether investors in its Leucadia Asset Management credit fund, Point Bonita, were adequately informed about the fund’s roughly $715 million receivables linked to auto-parts supplier First Brands Group, which filed for Chapter 11 in September. The probe reportedly focuses on whether investors understood the extent of their exposure to the bankrupt borrower.

Why it matters: Even before any formal charges, this investigation highlights regulatory scrutiny on disclosure of concentrated exposures in private credit and fund-of-credit structures, particularly where a manager’s banking or advisory relationships may create conflicts. Expect exam staff and enforcement to probe whether private fund investors truly understood single-name or sector concentration and how those risks were framed.

Potential action items: Private credit and multi-strategy managers should inventory concentrated borrower, sector, and counterparty exposures, and compare them against offering documents, side letters, and investor reports. Where disclosures are thin or technical, consider more plain-English explanations of exposure, downside scenarios, and any conflicts arising from banking or underwriting ties to key borrowers.

Read More Here(Reuters)

SEC Judgment on Customer MNPI Access and Control Failures

Summary: On December 2, 2025, the U.S. District Court for the Southern District of New York entered a final consent judgment a Broker Dealer firm for failure to maintain enforceable policies and access controls protecting customer material non-public information. System credentials were broadly shared, granting near-firmwide access, including to proprietary trading personnel who should have been restricted.

Why it matters: The judgment underscores that information-barrier obligations require active, auditable controls, not just written policy. Unrestricted or untraceable access to customer MNPI presents regulatory risk even absent allegations of intentional misuse.

Potential action: Firms should validate individualized system access, maintain readable audit trails, align entitlements to disclosure obligations, and fold control testing into exam-readiness efforts to evidence that information safeguards are restricted, enforceable, documented, and regulator-request ready.

Read More Here(SEC)

Rulemaking

Securities Lending & Short-Sale Reporting on Form SHO Delayed until 2028 - Commissioner Crenshaw Opposed the Move

Summary: On February 7, 2025, the U.S. Securities and Exchange Commission issued a new order further delaying implementation of Rule 13f-2 and the associated Form SHO short-sale reporting requirements. The first required Form SHO filing—previously postponed to February 17, 2026—is now delayed until early 2028, effectively extending industry preparation time by nearly three years from the original compliance timeline. Commissioner Crenshaw publicly opposed the move, arguing that the additional delay undermines transparency goals and unnecessarily slows reporting reforms meant to enhance market oversight.

Why it matters: This latest extension acknowledges the continued operational challenges financial institutions face, including data standardization, infrastructure development, and ongoing coordination with the SEC and service providers. While the delay reduces immediate compliance pressure, it also prolongs uncertainty regarding finalized expectations and timelines. The dissenting commissioner emphasized that the markets have already had significant lead time since the rule’s adoption and expressed concern that another postponement benefits industry convenience over investor transparency.

Potential action: Firms should treat the 2028 implementation date as an opportunity—not a reason to pause. Best next steps include continuing system development, enhancing policy frameworks, maintaining testing cycles, and engaging with vendors to ensure readiness. Organizations should also track any further interpretive guidance, FAQs, or technical specifications issued by the SEC during the extended preparation period, particularly as rule expectations may evolve ahead of the new implementation date.

Read More Here (SEC)

What Regulators are Saying

Prosecutors Signal Renewed Focus on Private Fund Valuations

Summary: Debevoise reports that recent remarks by the U.S. Attorney for the Southern District of New York and former SEC Chair Jay Clayton signal heightened regulatory and enforcement interest in private fund advisers’ valuation practices—especially where marks drive higher fees or involve transfers of illiquid assets between affiliated vehicles. The article notes this renewed focus builds on an extensive line of valuation-related SEC and DOJ actions.

Why it matters: Valuation has always been a pressure point for private funds, but the combination of stressed private credit borrowers, continuation vehicles, and reutilization means marks on illiquid assets are likely to get second-guessing. Regulators appear particularly focused on situations where advisers “cherry-pick” prices that benefit the house over investors, including when assets move between funds and when independent pricing inputs are thin.

Potential action: Advisers should re-evaluate valuation policies, committee documentation, and use of third-party pricing or valuation agents, with emphasis on affiliate transactions, continuation funds, and hard-to-value private credit assets. Consider targeted testing to confirm valuations are applied consistently, that exceptions are well-documented, and that investor disclosures about valuation processes and fee calculations match actual practice.

Read More Here(Debevoise)

In the news

CFTC Gives Firms a Month to Respond to Enforcement Warnings

Summary: It’s been reported that the CFTC will extend the time companies and individuals must respond to formal enforcement notices from 14 days to 30 days, along with other adjustments to its enforcement processes, according to Acting Chairman Caroline Pham. The change is intended to give targets more opportunity to present their case before the agency decides whether to file charges.

Why it matters: Many registered investment advisers also function as CPOs/CTAs or rely on commodity-linked strategies. A longer response window for CFTC enforcement warnings may improve the odds of resolving matters short of full-blown litigation, but it also means firms will need to use that extra time effectively, with well-organized facts and remedial proposals.

Potential action: Firms with derivatives or commodity exposure should coordinate now between legal, compliance, and trading teams on a playbook for responding to CFTC notices—who gather facts, who interfaces with the agency, and how remediation and restitution options are evaluated. Consider aligning this playbook with your SEC Wells process approach to ensure consistent messaging across regulators.

Read More Here(Bloomberg)

Events

ALTSMIA 2025 — Education with Allocation Edge

Summary: The upcoming ALTSMIA 2025, hosted by Markets Group, convenes alternative allocators, private-fund managers, and service partners December 8–10, 2025 at the Eden Roc Miami Beach. The program centers on private markets, hedge funds, private credit, global macro, real assets, and risk—framed through an education-first lens.

Why it matters: This forum concentrates decisive LP capital sources and operational partners actively deploying alternatives, making it valuable for fundraising, networking, and refining compliance and risk narratives.

Potential action: Register core team members, align accommodations, and prepare outreach paths for verified CRM import, lead capture, and post-event follow-ups.

Register Here (Markets Group)

Orical publications

Vanessa Sasson joined Eric A. Schultz for an attorney-led fireside chat focused on the fund-launch continuum. The discussion clarified practical registration triggers, real RAUM calculation pitfalls, state-versus-SEC timing considerations, early MNPI expectations, and the long-term value of building organized, defensible compliance infrastructure.

Read More Here (Orical)

About Orical

Orical is a trusted leader in investment management compliance consulting and compliance technology solutions. Founded by experienced investment management attorneys and former C-Suite executives, Orical has spent over 15 years helping investment advisers, private funds, and asset managers meet regulatory requirements with confidence. Our team delivers practical, business-focused compliance solutions designed to reduce risk, streamline operations, and navigate complex SEC and regulatory challenges.

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