Enforcement

SEC Says Adviser Promised Zero Losses While Clients Lost Up to 89%

Summary: The Securities and Exchange Commission charged an unregistered individual for allegedly defrauding clients by falsely claiming extensive investment experience, professional credentials, and the use of a proprietary artificial-intelligence trading strategy that purportedly eliminated downside risk. According to the SEC, the adviser operated without registration or licensing while soliciting and managing client assets, made guarantees that clients would not lose money, and represented that trades were driven by advanced AI technology. The SEC alleges these claims were materially false and misleading, and the trading activity resulted in significant client losses totaling more than $1.6 million. The SEC’s complaint seeks injunctive relief, industry bars, and civil penalties, with the matter proceeding through litigation.

Why it matters: The action underscores the SEC’s continued focus on unregistered advisory activity and misrepresentations involving emerging technologies such as artificial intelligence. Claims about credentials, experience, performance guarantees, or proprietary systems, particularly those invoking AI, are viewed as material statements that can trigger antifraud liability when inaccurate or exaggerated. The case reinforces that regulatory scrutiny does not depend on formal registration status and that misuse of AI-related marketing claims remains a clear enforcement priority.

Potential action: Advisers and firms should ensure that all marketing and client communications accurately reflect registration status, professional background, and investment processes, particularly where technology or AI is referenced. Compliance programs should include heightened review of performance representations and technology claims, and firms should confirm that advisory activities are not being conducted without the required regulatory registrations.

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FINRA Fines Broker-Dealer $1.1M for AML Compliance Failures

Summary: FINRA fined a broker-dealer network $1.1 million for AML and supervisory failures that allowed suspicious trading in low-priced securities to go undetected. The firm lacked reasonably designed procedures to identify patterns of suspicious activity, missing red flags tied to large volumes of penny-stock transactions. FINRA also cited deficiencies in supervisory systems and books-and-records related to consolidated reporting oversight. In a separate action, FINRA barred an individual for refusing to cooperate with an investigation into unapproved communications, highlighting continued focus on both firm-level and individual accountability.

Why it matters: This action highlights that AML compliance remains a central focus for FINRA in 2026, with regulators scrutinizing whether firms’ programs are appropriately designed and implemented to detect and investigate suspicious activity. Weaknesses in transaction monitoring, reporting procedures, and supervisory oversight not only undermine the ability to combat financial crime but also expose firms to significant regulatory penalties and reputational risk. The inclusion of individual enforcement alongside institutional fines underscores that accountability can extend beyond the firm to people responsible for compliance and cooperation.

Potential action: Broker-dealers and other regulated entities should review their AML compliance frameworks to ensure that risk-based procedures, including monitoring and reporting of low-priced and other high-risk transactions, are robust, documented, and regularly tested. Firms should also evaluate supervisory systems and books-and-records practices for completeness and accuracy, implement periodic internal audits of AML effectiveness, and reinforce training and oversight to detect red flags promptly. Additionally, enhancing policies for approved communications channels and cooperation with regulatory investigations may mitigate enforcement exposure for both organizations and individuals.

Read More Here(Global Relay)

What Regulators are Saying

SEC Remarks Highlight Disclosure Reform and Scale Disclosure Framework

Summary: At the 53rd Annual Securities Regulation Institute, a Commissioner of the U.S. Securities and Exchange Commission delivered keynote remarks emphasizing the need to enhance and streamline the public company disclosure framework. The speech reaffirmed that the SEC’s mandate is rooted in disclosure rather than merit or prudential regulation, and that obligations imposed on issuers should balance investor protection with capital formation efficiency. To that end, the Commissioner advocated reviewing and simplifying complex disclosure requirements, including parts of Regulation S-K, reexamining narrative and numerical disclosure items (such as cybersecurity and performance graphs), and considering scaled disclosure tailored to smaller companies so that obligations are proportionate with materiality and economic impact. The remarks also stressed that disclosure rules should focus on the quality and reliability of material information, avoid undue complexity, and support transparent markets without imposing unnecessary burdens on issuers.

Why it matters: These comments signal a continued internal push at the Commission to modernize and rationalize public company disclosure requirements, with potential implications for corporate reporting, compliance programs, and ongoing Regulation S-K reform efforts. Emphasizing scaled disclosure and materiality may lead to future rulemaking or interpretive guidance that reduces burdens on smaller issuers while maintaining robust investor protections. The remarks highlight the SEC’s recognition that overly detailed or one-size-fits-all reporting obligations can divert resources from core governance and disclosure controls without commensurate investor benefit, reinforcing the regulatory focus on balancing burdens with benefits as required by statute.

Potential action: Compliance and reporting teams should track developments in disclosure reform, including possible amendments to Regulation S-K and related guidance that may emerge from these ongoing discussions. Firms should consider assessing current disclosure controls and procedures to identify areas where streamlining could improve efficiency and reliability and prepare for potential engagement in public comment or industry outreach as the SEC’s revision efforts evolve. Monitoring how “scaled disclosure” concepts may apply to different categories of reporting companies can help issuers anticipate changes that could affect periodic reporting obligations and governance practices.

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CFTC Staff Grants No-Action Relief and Advances Large Trader Reporting Implementation

Summary: The Commodity Futures Trading Commission’s Division of Market Oversight has issued a staff no-action letter delaying the compliance date for the Part 17 large trader reporting rule in response to a request from industry, meaning the Division will not recommend enforcement against futures commission merchants, clearing members, foreign brokers, or designated contract markets that do not yet meet the reporting requirements. In tandem with the no-action position, the CFTC’s Division of Data published updates to the Part 17 Guidebook that provide clearer instructions on the form, coding structure, electronic transmission procedures, and data elements required under the rule, and announced the start of technical implementation testing and scheduled outreach calls with reporting firms. Subject to the conditions set in the letter, the exemption period and implementation timeline are expected to support compliance by July 26, 2027.

Why it matters: This development reflects the CFTC’s willingness to provide transitional relief while refining the operational framework for a major reporting regime — Part 17 large trade reporting — which has broad implications for data transparency and market surveillance in futures and options markets. By clarifying technical specifications and delaying exposure to enforcement risk, the Commission is signaling a pragmatic approach to onboarding complex reporting obligations, reducing near-term compliance strain for firms while preserving the integrity and long-term goals of the rule.

Potential action: Reporting firms should engage with the CFTC’s updated Guidebook and participate in scheduled implementation testing and outreach calls to ensure their systems, data feeds, and internal controls align with the clarified reporting expectations. Compliance and operations teams should integrate the revised timeline into their project plans, update relevant policies and procedures to reflect the no-action relief, and prepare for full compliance with the Part 17 requirements by the projected July 26, 2027, compliance date.

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SEC Advisory Committee Discusses Finders and Private Secondary Market

Summary: The SEC’s Small Business Capital Formation Advisory Committee will hold a public meeting on February 24, 2026, to continue discussions on a potential regulatory framework for “finders”, intermediaries that help companies raise capital from accredited investors, and to begin examining issues related to the private secondary market. The agenda includes data on capital raising by early-stage and small-cap companies and a discussion of private secondary mechanisms, such as continuation funds, SPVs, and tender offers, used to provide liquidity outside traditional IPO or M&A paths. The committee’s discussions may inform future SEC recommendations on rules, guidance, and policy affecting small business capital formation.

Why it matters: This meeting reflects the SEC’s ongoing focus on enhancing capital formation in private markets, particularly for small and emerging companies, and on evaluating how intermediaries like finders operate within the current regulatory framework. With private secondary market activity growing as a means of liquidity for investors and employees, the committee’s work could shape future policy or clarify expectations around capital-raising intermediaries, addressing long-standing uncertainty in this space.

Potential action: Market participants and advisers should monitor developments from this committee and consider how potential regulatory changes related to finders and private secondary market practices may affect compliance programs, capital-raising strategies and disclosures for private offerings. Engaging with public meetings or submitting comments to the SEC’s advisory process may provide an early opportunity to influence this evolving policy discussion.

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In The News

Rising Risk of Another SEC Shutdown

Summary: With the U.S. government approaching another potential shutdown, recent reporting suggests elevated risk that appropriations won’t be enacted before the end of January 2026, putting the funding of the Securities and Exchange Commission at risk. SEC funding is tied to the Financial Services and General Government appropriations bill, which is part of a larger package of unresolved spending bills in Congress. As for the latest update, the SEC remains funded through January 30, 2026, but that may change if Congress fails to pass the remaining appropriations before the deadline. The agency last updated its operations plan to address a potential shutdown in August 2025 and issued more detailed guidance in October 2025 outlining what filers and market participants should expect if a lapse in funding occurs. In practical terms, a shutdown would mean that most SEC staff actions — including reviewing registration statements and declaring them effective — would be suspended until funding resumes. Previously published guidance and client updates have outlined how capital markets transactions such as IPOs, offerings, and related filings could be affected if SEC’s operations are curtailed due to a lapse in appropriations.

Why it matters: The threat of a shutdown introduces significant operational risk for public companies and capital markets participants because core SEC functions — including review of prospectuses, effectiveness of registration statements, no-action responses, and comment dialogues — would be placed on hold. This uncertainty can delay deal timelines, disrupt planned IPO and follow-on activity, and complicate compliance with typical SEC transaction processes. While the SEC has indicated that systems such as EDGAR will remain open for filings even during a shutdown, the inability to receive staff review or clearance effectively stalls actionable progress on many transactions and increases strategic decision risk for issuers and underwriters.

Potential action: Market participants should proactively assess how a potential lapse in SEC operations would affect existing and planned filings, including IPOs, offerings, and registration statements. Deal teams should evaluate whether to accelerate filings and clear as many outstanding issues as possible before funding lapses, consider disclosure of shutdown-related risks in prospectuses or offering documents, and prepare contingencies if SEC reviews or declarations of effectiveness cannot occur. Staying current with updated SEC guidance and operations plans can also help firms navigate procedural requirements during a shutdown and manage disclosures and timing expectations for key stakeholders.

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CFTC Enforcement Pulls Back, Refocuses on Fraud and Intentional Misconduct

Summary: The CFTC’s enforcement approach shifted significantly in 2025 under Acting Chair Caroline Pham, with enforcement actions dropping from 58 in fiscal 2024 to 11 and total monetary relief falling from about $17.1 billion to under $1 billion. Pham reorganized the Division of Enforcement to prioritize fraud and intentional misconduct over technical violations, while emphasizing guidance, transparency, and due process, including changes to Wells notice procedures. A targeted enforcement “sprint” resolved several legacy matters with modest penalties, and early actions under incoming Chair Michael Selig suggest continued focus on harm-based enforcement rather than broad technical enforcement.

Why it matters: This represents a meaningful recalibration of CFTC priorities, reducing exposure for market participants to large penalties for inadvertent or technical compliance lapses while keeping emphasis on intentional misconduct, fraud and manipulation. The heavier use of guidance and procedural clarity may lower enforcement uncertainty for registrants and provide more predictability in how investigations and penalties are assessed.

Potential action: Market participants should reassess their enforcement risk frameworks to ensure alignment with CFTC’s focus on willful misconduct and victim harm, revisit internal escalation and self-reporting protocols considering the agency’s enforcement guidance and watch forthcoming CFTC advisories or procedural changes that may further shape enforcement expectations.

Read More Here (Reuters)

Events

Investment Adviser Compliance Conference 2026

Summary: The 2026 Investment Adviser Compliance Conference, hosted by the Investment Adviser Association, will be held March 18–20, 2026, in Washington, D.C., as a comprehensive, in-person program for compliance professionals. The two-day event brings together compliance officers, in-house counsel, industry experts, legal practitioners and regulatory officials to address the evolving regulatory landscape for investment advisers, featuring plenary sessions, breakout discussions and practical insights into current compliance challenges and best practices. Attendees will hear from a distinguished roster of speakers and have opportunities for peer networking and direct engagement with regulators and service providers.

Why it matters: This conference is widely regarded as a principal annual gathering for investment adviser compliance leaders, offering timely updates on regulatory developments, examination priorities, supervisory expectations and operational risk management strategies. With ongoing rulemakings and heightened enforcement focus across fiduciary, cybersecurity, AI and disclosure areas, the event’s sessions are designed to help firms anticipate change, refine compliance programs, and benchmark practices against industry peers and regulatory guidance.

Potential action: Compliance officers, general counsel, operations and risk leaders should consider deepening their regulatory understanding, gather actionable strategies for current compliance priorities, and strengthen connections with peers and regulators. Firms planning to enhance or recalibrate compliance frameworks can use insights from the program to inform policy updates, training initiatives, examination readiness efforts, and cross-functional coordination across risk and legal teams.

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