Enforcement

Derivatives Enforcement Action Highlights Ongoing Compliance Expectations

Summary: The CFTC announced an enforcement action against an active-duty service member in the U.S. Army, who allegedly engaged in insider trading on Polymarket.com using classified nonpublic information regarding U.S. operations to capture former Venezuelan President Nicolás Maduro. The case centers on compliance failures that undermined core regulatory safeguards in the derivatives markets.

Why it matters: This action reinforces the continued focus on core compliance failures, particularly where firms fall short on regulatory obligations designed to protect market integrity. For investment managers and market participants, it signals that regulators remain attentive to gaps in internal controls, supervision, and adherence to applicable rules.

Potential action: Firms should monitor how this philosophy translates into rulemaking and guidance, particularly in areas affecting capital raising, private markets, and disclosure obligations, and consider how 'an evolving regulatory tone' may impact fundraising strategies and market access.

Read More Here(CFTC)

What Regulators are Saying

SEC Signals Market-Driven Approach to Capital Formation

Summary: Hester Peirce delivered remarks at an international capital formation event making a clear case for market-driven capital allocation and the role of regulation in supporting, not directing, innovation. She cautioned against government-led capital allocation, noting that it can distort incentives and slow responsiveness to market needs, while highlighting the importance of enabling access to capital for entrepreneurs and investors.

Why it matters: The remarks reinforce a broader regulatory philosophy favoring efficient markets and restrained rulemaking. For investment managers, this signals continued support for capital formation initiatives and a regulatory lens that prioritizes investor access, innovation, and economic growth over prescriptive intervention.

Potential action: Firms should monitor how this philosophy translates into rulemaking and guidance, particularly in areas affecting capital raising, private markets, and disclosure obligations, and consider how evolving regulatory tone may impact fundraising strategies and market access.

Read More Here (SEC)

In the News

Private Credit Valuations Under Scrutiny as Lawsuit Targets Fee Practices

Summary: A lawsuit has been filed by an investor alleging that a private credit fund’s adviser inflated asset valuations in order to charge excessive fees. The complaint focuses on the valuation of illiquid investments, often classified as Level 3 assets, and claims that internal pricing models created an inherent conflict of interest when paired with fee structures tied to those valuations. It also raises concerns around fees charged on non-cash income, such as pay-in-kind interest, and points to a growing gap between reported net asset value and market pricing.

Why it matters: The case highlights increasing scrutiny around valuation practices in private credit, particularly where firms both determine asset values and earn fees based on those values. For investment managers, this reinforces regulatory and investors' focus on transparency, conflicts of interest, and the defensibility of valuation methodologies in less liquid markets.

Potential action: Firms should revisit valuation policies and governance frameworks, especially for illiquid or model-based assets. Independent validation, clear documentation, and alignment between valuation processes and fee calculations can help mitigate conflicts and reduce litigation and regulatory risk.

Read More Here (Reuters)

Fund Finance Surpasses $1 Trillion as Private Credit Drives Growth

Summary: The fund finance market has grown to exceed $1 trillion, fueled by the continued expansion of private credit. Once primarily used for short-term liquidity, fund finance has evolved into a more complex and integral part of private markets, including the rise of net asset value (NAV) loans and hybrid financing structures. These facilities are increasingly used by funds both to manage liquidity and enhance returns, reflecting a broader shift in how private credit strategies operate.

Why it matters: The growth of fund-level leverage highlights how private credit and fund finance are becoming more interconnected and more systemically important. At the same time, increased use of NAV-based lending, payment-in-kind structures, and hybrid facilities introduces additional risk, particularly around asset quality, transparency, and liquidity under stress.

Potential action: Firms should evaluate their use of fund-level leverage and financing structures, with a focus on underwriting discipline, stress testing, and transparency. As these strategies become more common, ensuring that risks are clearly understood, monitored, and disclosed will be critical from both a regulatory and investor perspective.

Read More Here (Reuters)

Events

Orical’s Regulatory Breakfast Briefing | May 27, 2026

Summary: Orical LLC will host a Regulatory Breakfast Briefing on Wednesday, May 27, 2026, at 9:00 AM (ET), with both in-person attendance at 641 Lexington Avenue, 17th Floor, New York, NY and a virtual option available. The session will feature Eric A. Schultz of Reliant Fund Services and focus on current SEC scrutiny and what it means for investment managers.

Why it matters: As SEC exam priorities continue to evolve, firms are seeing increased focus on core areas such as fraud, disclosure, conflicts of interest, and operational controls. Understanding how exam focus is shifting, and where firms are getting caught, can help managers better prepare for regulatory scrutiny.

Potential action: Firms should review their compliance programs with an emphasis on reconciliation processes, recordkeeping practices, and disclosure controls to ensure alignment with current SEC expectations. Those interested in attending in person should note that space is limited and email zaslanian@orical.org to reserve a spot.

Read More Here (Orical)

SEC Compliance Outreach Seminar Highlights Regulation S-P and Exam Expectations

Summary: The U.S. Securities and Exchange Commission will host a virtual Compliance Outreach Program regional seminar on May 12, 2026 (1:00–2:15 PM ET) for investment advisers and investment companies. The session will focus on new Regulation S-P compliance obligations and provide insight into what firms can expect when interacting with examination staff, along with a live Q&A.

Why it matters: This event offers direct insight into how exam staff are approaching data protection, incident response, and examination practice, which are current SEC priority areas. It also signals continued emphasis on practical readiness for upcoming compliance deadlines.

Potential action: Firms should use this session to benchmark their Regulation S-P readiness, including incident response plans, documentation, and exam preparedness. Preparing targeted questions in advance can help clarify expectations and identify potential gaps before exams.

Read More Here (SEC)