Enforcement

Cherry-Picking Sanctions: SEC Hits RIA for Misleading Disclosures

Summary: The Commission issued an administrative order finding that, from December 2015 to October 2019, a state-registered investment adviser and its senior officer disproportionately allocated profitable trades to the officer’s personal account while allocating first-day-loss trades to clients and misrepresented in Form ADV that employee trading was regularly reviewed. The order concludes this conduct breached fiduciary duties and violated Advisers Act Section 206(2). Remedies include a cease-and-desist, censure of the firm, a six-month industry-wide suspension for the individual from association with regulated entities and from serving in investment company roles, and monetary relief consisting of disgorgement, prejudgment interest, and a civil penalty.

Why it matters: The matter underscores exam focuses on trade-allocation fairness, block/omnibus trade practices, and the accuracy of ADV and brochure statements around employee-trading reviews. “Cherry-picking” patterns, especially when paired with misleading disclosures, remain a straightforward path to fiduciary-duty liability under Section 206(2).

Potential action: Test trade-allocation controls for omnibus accounts and same-day allocations; run data-driven reviews for first-day P/L dispersion between client and employee accounts; verify that Form ADV and compliance manuals accurately reflect actual surveillance of employee trading; document remedial enhancements and Board/CCO reporting.

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SEC Secures $13M Settlement in Adviser Misappropriation Case

Summary: The SEC filed a settled action in federal court alleging that a Georgia-based investment adviser breached fiduciary duties and misappropriated more than $9.8 million from an elderly client (and related estate assets). According to the complaint, the adviser opened and controlled a trust brokerage account without the client’s knowledge, used spoofed credentials to conceal activity, and diverted funds for personal purchases including real estate and vehicles. Without admitting or denying the allegations, the defendant agreed, subject to court approval, to a final judgment imposing permanent injunctions, activity restrictions, disgorgement of $9,025,424.89 plus $1,029,626.64 in prejudgment interest, and a $3,000,000 civil penalty.

Why it matters: The case underscores the SEC’s focus on elder-investor protection, disbursement controls, and adviser access to client accounts. It highlights how unauthorized account openings, credential control, and concealment tactics can quickly escalate into antifraud and fiduciary-duty violations under the Securities Act, Exchange Act, and Advisers Act.

Potential action: Re-test authorization, onboarding, and disbursement workflows for individually managed accounts and trusts; verify that standing letters of authorization and third-party transfers require dual review; tighten monitoring for anomalous transfers and account-profile changes; refresh staff training on elder-exploitation red flags and escalation protocols; document all control testing and any remedial enhancements.

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Rulemaking

FINRA Moves to Allow Projections in Retail Communications

Summary: FINRA filed SR-FINRA-2026-004 to amend Rule 2210 (Communications with the Public) to allow members to include projected performance or targeted returns in communications about a security, portfolio, asset-allocation, or investment strategy. Use of projections would be subject to specified conditions intended to ensure a sound basis, appropriate assumptions, and prominent risk disclosures, with implementation timing to be announced if approved by the SEC.

Why it matters: Although FINRA rules apply to broker/dealers, and not investment advisers, this would be a significant shift from the historical prohibition on projections in retail communications for BDs. If adopted, it could expand how fund distributors and dual-registrant affiliates market strategies, but will also raise examiner focus on model governance, inputs, disclosures, and comparability to actual results.

Potential action: Inventory where your firm (or BD affiliate/placement agent) might use projections; draft governance standards for methodologies, assumptions, and data lineage; prepare control checklists (prominence of risks, scenario ranges, sensitivity analysis, substantiation files); and map supervision/testing updates to Rule 2210 and related WSPs in advance of any approval.

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CFTC Pulls Event-Contracts Proposal, Plans New Path

Summary: The CFTC withdrew its June 10, 2024, notice of proposed rulemaking on “Event Contracts” and stated it does not intend to finalize that proposal. Commission staff also withdrew a 2025 staff advisory directed at certain contract markets regarding sports-event contracts. The Commission indicated it will pursue a new rulemaking approach to event contracts consistent with the Commodity Exchange Act.

Why it matters: The withdrawal resets the regulatory direction for event-based contracts, including political and sports events, which some managers use for hedging or research signals through designated contract markets. Until a replacement proposal appears, firms should expect interim uncertainty around product listing standards and exchange interpretations, with potential impacts on venue approvals, clearing, and compliance documentation.

Potential action: Inventory any strategies, signal pipelines, or hedges tied to event-based contracts and pause policy changes that were keyed to the 2024 NPRM or the 2025 staff advisory. Engage FCMs and DCMs to confirm current listing and clearing expectations, update internal product-approval and surveillance memoranda to reflect the withdrawal, and monitor for the forthcoming proposal to realign compliance, disclosures, and risk factors.

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What Regulators are Saying

CFTC Reissues Stablecoin Collateral No-Action Relief, Broadens Eligible Issuers

Summary: The CFTC’s Market Participants Division reissued Staff Letter 25-40 addressing the use of “payment stablecoins” as collateral for margining futures and cleared swaps. The reissued letter refines and broadens the definition of eligible “payment stablecoin” issuers to include certain federally regulated entities (e.g., national trust banks), while retaining conditions intended to mitigate market, liquidity, and operational risks when FCMs accept such collateral. The relief is limited in scope and continues to emphasize risk-management, segregation, and disclosure expectations.

Why it matters: For managers posting or receiving stablecoin collateral through FCMs/clearing, the update can expand eligible issuers and operational flexibility, but it does not eliminate core diligence and control obligations. Counterparty documentation, concentration limits, convertibility, and custody mechanics remain focal points for both prudential and market-integrity risk.

Potential action: Revisit collateral schedules to determine whether newly eligible stablecoins/issuers will be permitted; confirm your FCM’s acceptance criteria, haircuts, and concentration thresholds; update collateral and liquidity risk memos to address convertibility, settlement timing, and wallet/custody arrangements; ensure fund disclosures and internal policies reflect the revised scope of permissible collateral; and monitor for any subsequent Commission rulemaking that could supersede staff relief.

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SEC Commissioner Uyeda: Treasuries & Tokenization — Clearing, Access, and Next Steps

Summary: In remarks at the Asset Management Derivatives Forum, Commissioner Mark T. Uyeda outlined implementation of the SEC’s Treasury Clearing Rule and the Commission’s work to facilitate tokenization within existing securities laws. Key updates included approval of two additional clearing agencies for Treasury transactions (expanding options beyond FICC), ongoing consideration of FICC–CME customer cross-margining, FICC’s new “collateral-in-lieu” service and agent-clearing expansion to triparty, and staff engagement on the scope of the rule (e.g., inter-affiliate exemptions and mixed-CUSIP triparty repo treatment). The message emphasized flexibility, access, and collaborative rollout ahead of looming compliance dates.

Why it matters: Central clearing of Treasuries affects liquidity, margin, and operational plumbing across funds using cash and repo markets; expanded clearing-agency options and potential cross-margining could reduce capital and operational frictions. For managers exploring tokenization (e.g., fund interests, settlement rails), the remarks signal continued focus on enabling structures within current regulatory frameworks.

Potential action: Map your Treasury cash/repo flows to clearing-agency access paths; refresh onboarding with new CCPs and assess the impact of possible customer cross-margining on margin methodology and collateral mobility. Update playbooks for FICC services (collateral-in-lieu, triparty agent clearing). For any tokenization pilots, document custody/transfer/recordkeeping analyses and ensure policies align with existing securities-law requirements.

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CFTC Launches Valentine’s-Week Campaign Targeting Relationship-Investment Scams

Summary: The CFTC’s Office of Customer Education and Outreach announced national and international initiatives—timed to Valentine’s week—to warn consumers about “relationship investment” scams that often direct victims to fake crypto trading sites. The interagency DatingOrDefrauding? campaign includes U.S. federal and state partners and coordination with international regulators, highlighting red flags such as pressure to move conversations to encrypted apps, claims of crypto-trading expertise, and requests to send funds or digital assets.

Why it matters: Although retail-focused, these scams increasingly touch advisory firms through clients, family members, or co-investors, creating reputational, operational, and complaint-handling risk. Expect examiners to ask about investor-education efforts, incident-response playbooks under Reg S-P/S-ID, and escalation paths when staff detect suspected fraud.

Potential action: Circulate a client alert summarizing common red flags and safe-harbor reporting channels; refresh front-office and client-service training on spotting and escalating suspected relationship scams; verify disbursement controls and standing-authorization checks; and document response procedures (including when to contact law enforcement or file SARs where appropriate).

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In The News

Securities Enforcement 2025 Year-End Update — Key Themes for RIAs and Private Funds

Summary: Gibson Dunn’s year-end review outlines major 2025 shifts in SEC enforcement: (i) notable case dismissals in crypto, FCPA, and certain cyber-disclosure matters; (ii) process changes to the Wells program and a return to simultaneous consideration of settlement offers and collateral waivers; (iii) leadership turnover across Enforcement and other divisions; and (iv) a measurable decline in enforcement activity, with the mix skewing toward advisers, insider trading, and offering-fraud cases. The alert flags central-clearing, cross-border issuer scrutiny, and evolving priorities to watch in 2026.

Why it matters: For private-fund advisers, the report signals a recalibrated Enforcement posture that still targets classic fiduciary and disclosure failures while easing off certain thematic matters. Wells and settlement process adjustments can change defense strategy, timing, and collateral-consequence analysis (e.g., WKSI, Reg D). Expect exam/enforcement interest to remain high for conflicts, marketing rule claims, custody/controls, and insider-trading hygiene.

Potential action: Revisit investigation response playbooks to leverage updated Wells expectations; refresh settlement/waiver coordination checklists; benchmark 2025 adviser cases against your controls (conflicts, marketing substantiation, custody/authorization, books-and-records); and document 2026 priorities with board/LP comms, including tokenization/clearing and cross-border exposure risks highlighted in the alert.

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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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