Enforcement

SEC Bars Former Advisory Representative After Mail-Fraud Conviction for Using Client Funds for Personal Purposes

Summary: The SEC issued a settled administrative order instituting proceedings under Exchange Act Section 15(b) and Advisers Act Section 203(f) against an individual who previously served as an advisory representative and registered representative at a dually registered adviser/broker-dealer. The order is based on a criminal conviction for mail fraud involving a scheme in which the individual solicited funds from multiple investors with promises to invest in securities but instead used investor money for personal purposes. The SEC imposed a full bar from association with brokers, dealers, investment advisers, municipal securities dealers/advisers, transfer agents, and NRSROs, with any reentry subject to applicable conditions.

Why it matters: This underscores the SEC’s continued use of “follow-on” administrative bars tied to criminal convictions and misconduct involving client funds, an area closely watched in exams for both retail advisers and private fund managers. It highlights the importance of supervision, investor-funds handling controls, and robust hiring/monitoring procedures for supervised persons.

Potential action: Reassess hiring and ongoing monitoring controls (background checks, outside business activity reviews, attestations, and red-flag escalation). Re-test controls around client funds movement and third-party payments and confirm incident-response protocols for suspected misappropriation are documented, practiced, and enforced.

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What Regulators are Saying

SEC Enforcement Director: “Principles, Process, and Priorities” for 2026

Summary: In remarks to the Los Angeles County Bar Association, the SEC’s Enforcement Director outlined the Division’s direction heading into 2026, emphasizing three themes: (1) using the Division’s resources “fairly and judiciously,” with an emphasis on timely resolutions; (2) prioritizing investor protection by pursuing core fraud matters, including schemes that harm retail investors and conduct that undermines market integrity (e.g., accounting fraud, insider trading, manipulation); and (3) continuing to bring certain non-fraud cases where compliance failures create meaningful risk to investors or markets, including areas tied to reporting, books and records, internal controls, and regulated-firm obligations. The remarks also highlighted the importance of the Wells process as part of procedural fairness and informed decision-making in charging and resolution.

Why it matters: This signals that while headline fraud cases remain front-and-center, the SEC is not stepping away from “rules-based” enforcement where compliance breakdowns are consequential. For RIAs and private fund managers, it reinforces that exam findings can still mature into enforcement actions—especially when deficiencies implicate fiduciary duties, disclosure integrity, recordkeeping, or supervision and controls.

Potential action: Review your firm’s highest-risk areas through an enforcement lens, not just an exam lens—particularly disclosures, conflicts, valuation/allocations, marketing substantiation, and books-and-records. Stress-test your incident escalation and remediation documentation so you can demonstrate timely detection, containment, and corrective action. If you receive a deficiency letter or inquiry, ensure response packages are tightly organized, supported, and consistent with your written policies and actual practices.

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CFTC Files Amicus Brief Defending Exclusive Jurisdiction Over Prediction Markets

Summary: The CFTC announced it filed an amicus brief in the U.S. Court of Appeals for the Ninth Circuit asserting the agency’s exclusive jurisdiction over U.S. commodity derivatives markets, including “event contracts” commonly called prediction markets. The brief was filed in litigation involving a CFTC-registered exchange and Nevada regulators and argues that states and other entities lack authority to further regulate markets within the CFTC’s exclusive jurisdiction, citing statutory history and prior judicial and congressional actions recognizing the CFTC’s role.

Why it matters: This is a clear signal that the CFTC intends to actively defend federal primacy for event contracts. For private fund managers, the outcome could affect the availability, venue access, and compliance treatment of event contracts used for hedging event-driven risks or managing portfolio exposure, especially where state-level challenges create fragmentation risk.

Potential action: If you trade (or are evaluating) event contracts/prediction markets, document your permitted-instruments analysis and venue due diligence, including how products are classified and cleared. Monitor state-level restrictions and litigation developments that could impact liquidity or trading access and be prepared to update disclosures and internal product-approval memos as the regulatory perimeter is clarified.

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In the News

SEC Enforcement Outlook for 2026: Bread-and-Butter Cases, Individual Liability, and AI-Era Scrutiny

Summary: This analysis reviews how SEC enforcement priorities shifted in 2025 and what that implies for 2026. It expects continued focus on core case categories, insider trading, financial reporting/accounting fraud, and disclosure fraud, while emphasizing a growing push toward individual liability (with corporate settlements rising and more frequent charges against individuals). The piece also flags heightened scrutiny of social-media disclosures by issuers and executives, a more prominent role for state regulators as federal staffing tightens and increasing use of data analytics and generative AI by both regulators and regulated firms—alongside the likelihood that AI itself becomes a larger enforcement focus.

Why it matters: For RIAs and private-fund managers, the themes translate into higher expectations around (i) surveillance and controls that detect misuse of information and manipulative conduct, (ii) documentation that supports disclosures and marketing statements, (iii) governance around employee conduct and accountability, and (iv) preparedness for multi-regulator exposure where state authorities may pursue matters in parallel with (or in lieu of) federal actions.

Potential action: Reassess your 2026 compliance risk assessment to prioritize insider-trading/MNPI controls, disclosure substantiation (including performance and valuation narratives), and employee conduct accountability. Formalize social-media and public-communications review standards where senior personnel post market-moving content. If you use AI tools, document governance, testing, monitoring, and human oversight, and be prepared to explain controls and limitations during exams or investigations.

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Prediction Markets & Crypto: CFTC Chair Signals New Rulemaking, DOJ Spotlight on Fraud

Summary: A client memo reports that the CFTC Chairman’s first public remarks outlined a regulatory agenda for prediction markets (“event contracts”) and cryptocurrency focused on greater regulatory clarity and inter-agency coordination. Key takeaways include the CFTC’s plan to withdraw a prior 2024 proposed approach to event contracts and instead pursue clearer rules to regulate prediction markets, plus a “Project Crypto” initiative with the SEC aimed at a more unified federal framework for crypto-asset markets. The memo also notes heightened enforcement risk: the U.S. Attorney for the Southern District of New York signaled increased scrutiny of prediction-market misconduct under traditional fraud statutes, with particular attention to controls around material nonpublic information and market integrity.

Why it matters: This combination of prospective CFTC rulemaking and DOJ fraud focus increases regulatory uncertainty and enforcement exposure for firms that trade, invest in, or provide services to prediction-market platforms and crypto venues. For RIAs and private fund managers, it also raises diligence expectations around permitted instruments, venue/clearing status, MNPI policies, and marketing/disclosure practices for strategies using event-based products.

Potential action: If you have exposure to event contracts or crypto-related derivatives, refresh your product-approval and venue due-diligence files, including classification, clearing/custody mechanics, and disclosure language. Reassess MNPI policies and surveillance controls for personnel interacting with prediction-market data and positions. Monitor and consider commenting on forthcoming CFTC rulemakings, either directly or through trade associations, given the likely impact on market structure and permissible products.

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Events

IAA Investment Adviser Compliance Conference Returns to D.C.

Summary: The Investment Adviser Association will host its Investment Adviser Compliance Conference on March 18–20, 2026 in Washington, D.C. The conference brings together SEC staff, CCOs, legal advisers, and compliance professionals for practical discussions on current regulatory priorities and compliance best practices.

Why it matters: The event is a key forum for advisers to hear directly from regulators, stay current on exam and enforcement trends, and benchmark their compliance programs against industry standards.

Potential action: Firms should consider registering early, identifying priority sessions aligned with their regulatory focus, and using the conference to connect with peers and regulators.

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iConnections Global Alts Miami 2026 — “Alts Week” Returns to Miami Beach

Summary: iConnections’ Global Alts Miami is scheduled for February 23–26, 2026 at the Miami Beach Convention Center. The program is positioned as a large capital-introduction and networking forum for alternative investment managers and allocators, with broad representation across hedge funds, private equity, private credit, venture, real estate, infrastructure, and digital assets, plus structured meeting opportunities and content programming.

Why it matters: Major cap-intro events like this can drive fundraising pipelines, allocator diligence conversations, and near-term market color across strategies. For RIAs and private-fund managers, it’s also where investor expectations on governance, transparency, operational controls, and emerging themes (AI, tokenization, risk management) often crystallize into DDQ questions.

Potential action: Lock in key meetings early with existing and target allocators; prepare a tight “ODD-ready” package (policies, SOC reports, cyber/Reg S-P posture, valuation/allocations, marketing substantiation); and align talking points on current regulatory hot buttons (marketing rule, recordkeeping, custody, digital assets) so IR and compliance messaging stays consistent.

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