Enforcement

Enforcement Action Focuses on Conflicted SPAC Investing

Summary: On January 16, 2026, the SEC issued Cease-and-Desist Proceedings under Sections 203(e) and 203(k) of the Investment Advisers Act against a registered investment adviser. These proceedings arise from violations of the Advisers Act in connection with the firm’s activities related to a special purpose acquisition company (“SPAC”). In 2022, as part of the SPAC transaction, the manager invested client assets in SPAC transactions that increased the potential value of investments related to that SPAC previously made by the adviser, its personnel, and its clients. The adviser did not disclose that it had conflicts of interest relating to investing its clients in the 2022 transactions. As a result, the adviser violated Section 206(2) of the Advisers Act.

Why it matters: This action underscores the continued use of Advisers Act authorities to address compliance and supervisory breakdowns. For registered advisers and private-fund managers, it is a reminder that gaps in supervision, inaccurate or incomplete disclosures, and weaknesses in fiduciary processes remain core enforcement priorities and can result in administrative sanctions.

Potential action: Compare the order’s focus areas to existing policies and controls, with targeted reviews of supervisory systems, disclosure practices, and fiduciary-duty processes. Where gaps are identified, update manuals, testing, and training, document remedial steps and governance oversight to evidence effective implementation in future examinations or inquiries.

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SEC Orders Against Registered Investment Advisers for Misleading Liability Disclaimers in their Advisory Agreements

Summary: On January 20, 2026, the U.S. securities regulator announced a settled administrative proceeding against two registered investment advisers operating in different states. The regulator found that from at least May 2019 through December 2024 the firms required retail clients to sign advisory agreements containing misleading liability disclaimers (hedge clauses) that could suggest clients waived non-waivable fiduciary rights. Their agreements also lacked proper assignment-consent language, and the firms held client assets without obtaining independent verification by a public accountant as required under the custody rule. The regulator found the respondents willfully violated multiple provisions of the Investment Advisers Act of 1940 and agreed to cease-and-desist orders and civil penalties totaling $150,000.

Why it matters: This order highlights ongoing regulatory scrutiny of retail advisory agreements, particularly the use of liability disclaimers that mischaracterize fiduciary duties, and the importance of robust custody compliance. Misleading contractual provisions and failure to implement written policies and procedures—even if they exist on paper—remain focal points for enforcement. Registered investment advisers and private fund managers should view this as a reminder that contract language and custody practices must be clear, compliant, and consistently applied.

Potential action: Review advisory agreement templates to ensure liability disclaimers do not undercut fiduciary obligations or imply waiver of client rights. Confirm assignment clauses comply with regulatory expectations by securing client consent where required. Reassess custody practices to verify that any client assets deemed to be in custody are subject to required independent verification and that policies and procedures are not only documented but actively implemented and monitored.

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CFTC Enforcement Actions Highlight Market Integrity and Registration Compliance

Summary: On January 16, 2026, the Commodity Futures Trading Commission announced several enforcement actions in federal courts addressing misconduct in commodities and derivatives markets. The actions involved convictions for spoofing precious metals futures, civil charges for misappropriation of confidential information and fictitious trading, and a newly filed complaint alleging fraud and failure to register in connection with the solicitation of more than $10 million through an unregistered commodity pool. The matters resulted in civil monetary penalties, trading bans, injunctions, and ongoing litigation.

Why it matters: Even where registered investment advisers are not directly named, these actions reinforce the CFTC’s continued focus on market manipulation, fraud, and registration failures. Private fund managers and advisers with exposure to futures, swaps, digital assets, or other commodity interests should expect sustained regulatory scrutiny around trading behavior, use of confidential information, and proper registration or exemption status.

Potential action: Advisers should review trading surveillance and execution controls to ensure systems can detect and prevent manipulative practices such as spoofing. Firms should also reassess whether any pooled vehicles or strategies involving commodity interests are appropriately registered or clearly eligible for exemptions, and confirm that compliance procedures around information handling, supervision, and recordkeeping are actively implemented and tested.

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Rulemaking

CFTC Proposes Exemptive Relief to Facilitate Cross-Margining for Treasuries Clearing

Summary: The Commodity Futures Trading Commission (CFTC) published a Federal Register notice (FR Doc. 2025-23150) proposing an order that would grant exemptive relief under the Commodity Exchange Act (CEA) to allow cross-margining of customer positions cleared at two major clearing entities, the Chicago Mercantile Exchange (CME) and the Fixed Income Clearing Corporation (FICC) subject to conditions. The proposal would ease restrictions that currently limit the commingling of customer funds and positions across futures and Treasury securities clearing accounts (i.e., allowing a combined margin treatment), which CFTC preliminarily believes would lower clearing costs, increase operational efficiency, and support implementation of the Treasury Clearing Requirement. Public comments are invited by January 16, 2026.

Why it matters: For registered investment advisers and private fund managers that engage in or oversee trading across Treasury securities and related derivatives, cross-margining relief could significantly reduce margin costs and operational friction. By recognizing correlated risks across portfolios cleared under different systems, the exemptive order would allow more efficient use of capital for large, multi-product strategies, including those managed by advisers with macro, fixed-income, or relative-value mandates. Additionally, the proposal underscores ongoing regulatory efforts to harmonize clearing practices considering evolving statutory requirements.

Potential action: Evaluate how your funds’ clearing and trading strategies could benefit from cross-margining, especially if you trade both Treasury futures and cash Treasury securities in centrally cleared accounts. Consider submitting comment letters before the deadline if your firm, custodian, or clearing broker has insights on risk management, customer-protection safeguards, or operational impacts. Coordinate with clearing brokers and legal counsel to assess the conditions attached to the proposed exemption and how your firm’s risk systems would capture any revised margin treatments if adopted.

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What Regulators are Saying

SEC Names New Director of the Division of Examinations

Summary: The U.S. Securities and Exchange Commission announced that Keith E. Cassidy has been named Director of the Division of Examinations, effective January 2026, after serving as Acting Director since May 2024. Cassidy previously held several senior roles within the Division, including Deputy Director and National Associate Director of the Technology Controls Program, and has played a key role in advancing risk-based and technology-focused examination initiatives.

Why it matters: The appointment signals continuity in the SEC’s examination leadership and reinforces the Division’s ongoing focus on risk-based exams, operational effectiveness, and technology and cybersecurity oversight. Cassidy’s background suggests continued emphasis on data-driven exam scoping and coordination across the national examination program.

Potential action: Advisers should remain focused on exam readiness, particularly around technology controls, cybersecurity practices, and documentation supporting risk-based compliance programs, as these areas are likely to remain examination priorities under the Division’s current leadership.

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Atkins Outlines Regulatory Philosophy in Remarks at Tel Aviv Stock Exchange

Summary: On January 16, 2026, Paul S. Atkins delivered remarks at the Tel Aviv Stock Exchange focusing on regulatory philosophy, market structure, disclosure, and the role of capital markets in fostering economic growth. In his speech, Chairman Atkins emphasized the importance of clear, balanced regulation that promotes transparency and investor confidence without imposing unnecessary burdens on market participants. He touched on topics such as the role of disclosure in efficient markets, the risks of overly complex regulatory frameworks, and the need to evaluate both benefits and costs of regulatory initiatives. The remarks also reflected international regulatory cooperation and the importance of consistent, predictable rules for global capital flows.

Why it matters: Atkins’ remarks are significant for registered investment advisers and private fund managers because they provide insight into the SEC’s strategic thinking and regulatory priorities under his leadership. His emphasis on cost-benefit analysis, clear disclosure expectations, and skepticism of regulatory complexity signals that future rulemaking and enforcement may be shaped by a philosophy that values simplicity, accountability, and economic impact assessment. This matters, especially for adviser rulemakings, disclosure enhancements, and proposals that could affect private fund reporting and compliance burdens.

Potential action: Advisers should review current and forthcoming policy proposals through the lens articulated by Atkins, particularly regarding disclosure frameworks and the balance between investor protection and regulatory burden. Consider assessing your firm’s readiness for disclosure enhancements by mapping existing disclosures to anticipated priorities, documenting how enhanced transparency benefits investors, and preparing comment letters where appropriate. Finally, firms operating globally should note the emphasis on international regulatory cooperation and ensure cross-border compliance approaches reflect evolving expectations for harmonized disclosure and investor protection standards.

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SEC Updates Marketing Rule FAQs

Summary: The SEC’s Division of Investment Management clarified two Marketing Rule issues. First, while “net performance” may be calculated using either actual fees or a model fee, it can be inconsistent with the rule’s general prohibitions to present only net performance using lower historical actual fees when the intended audience will pay higher fees. Footnote 590 is not a categorical mandate to use model fees in every such case; compliance turns on facts and circumstances, including the clarity of disclosures, and advisers may use various means to illustrate fee-impact differences. Second, for compensated testimonials and endorsements, staff would not recommend enforcement where the promoter’s only disqualifying event is a self-regulatory organization’s final order that did not bar or suspend the person from acting in any capacity, provided the person is in compliance with the order and the advertisement discloses the order and links to it if publicly available.

Why it’s important: These interpretations address two recurring exam flashpoints: performance comparability (when anticipated fees exceed those in the track record) and promoter eligibility under the testimonials/endorsement’s framework. Applying them correctly reduces the risk of misleading advertising and improper use of compensated endorsements.

Potential action: Re-review advertisements aimed at audiences paying higher fees than those in historical performance; where appropriate, recast net performance using a model fee that reflects the anticipated fee, add clear disclosures explaining fee differentials and their effects, maintain substantiation for all calculations, and document the facts-and-circumstances analysis and approvals. Updates promote diligence and certifications to capture SRO final orders; if relying on the staff position, verify no bar or suspension, confirm ongoing compliance with the order, and include prominent, 10-year disclosures with a link to the order in any advertisement.

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SEC IM Director Shares Views on Proxy Voting

Summary: In January 2026 remarks, the Director of the Division of Investment Management at the U.S. Securities and Exchange Commission emphasized that proxy voting is a fiduciary decision that requires judgment and is not inherently required in all circumstances. Advisers were encouraged to consider whether voting a proxy meaningfully advances client interests and aligns with the investment mandate, rather than defaulting to a practice of voting all proxies. The remarks also addressed advisers’ reliance on proxy advisory firms and the emerging use of artificial intelligence tools in proxy analysis.

Why it matters: The comments reinforce a shift away from mechanical proxy voting practices and toward a principles-based fiduciary analysis. They also signal increased regulatory focus on advisers’ oversight of proxy advisory firms and the governance and transparency of any automated or AI-driven voting tools, areas that may draw examination attention.

Potential action: Advisers should review proxy voting policies to ensure they reflect a documented fiduciary rationale, reassess reliance on proxy advisory firms, and confirm that any decision not to vote proxies is consistent with disclosures. Firms using or considering AI tools in proxy voting should ensure appropriate oversight and controls are in place.

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SEC Announces New General Counsel Appointment

Summary: The U.S. Securities and Exchange Commission announced the appointment of its General Counsel, who will oversee legal direction and provide strategic advice across the Commission’s regulatory and enforcement activities. The new General Counsel succeeds the previous acting head and brings substantial experience from prior senior legal roles in government and the financial sector. As the chief legal officer for the agency, this role plays a central part in shaping legal framing for rulemaking, enforcement strategy, and cross-agency coordination at a critical time for capital markets regulation.

Why it matters: The General Counsel’s office is a core advisor on regulatory interpretations, litigation strategy, enforcement approaches, and rulemaking defenses. A change in this role can influence how the agency frames legal risk, prioritizes issues in litigation, and structures legal support for key initiatives, which matters to registered investment advisers and private fund managers as they interpret and implement regulatory obligations. The position also helps determine the SEC’s approach to defending major rulemaking efforts in court and advising Commissioners on legal risks.

Potential action: Advisers should monitor whether the new General Counsel’s legal philosophy affects the SEC’s litigation posture or enforcement interpretations, especially on contested rules affecting adviser compliance (Marketing Rule, custody, Form PF, digital assets, etc.). Consider reviewing your firm’s regulatory comment strategies and legal risk frameworks considering potential shifts in legal strategy and coordination between enforcement and rule writing divisions. Staying aware of key legal leadership changes helps compliance teams anticipate subtle shifts in regulatory emphasis or defense stances on contested interpretations.

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Events

AI Governance and Operational Impact in Hedge Funds — Panel Discussion

Summary: On Thursday, January 29, 2026, Jim Leahy will be speaking on a panel hosted by Lowenstein Sandler focused on artificial intelligence risks, controls, and the operational impact of AI on alternative asset managers. The in-person program will take place from 3:00–6:30 p.m. ET at Lowenstein Sandler’s New York City office and will feature two panel discussions examining how hedge fund managers are approaching AI from both a governance and operational perspective. Topics will include allocator expectations, policy design, practical AI use cases, regulatory considerations, and examination readiness. A cocktail reception will follow the panel discussions.

Why it matters: As AI adoption accelerates across the alternative investment industry, regulators, allocators, and compliance teams are increasingly focused on governance, oversight, and real-world implementation. This program offers timely insight into how fund managers are operationalizing AI while managing regulatory risk, aligning with evolving exam expectations, and demonstrating appropriate controls to investors and regulators.

Potential action: Investment managers, CCOs, COOs, and operations professionals may benefit from attending to better understand emerging best practices around AI governance, operational deployment, and regulatory preparedness. Firms evaluating or expanding AI use cases should also consider how the discussion informs internal policy development, due diligence readiness, and exam response strategies.

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