Securities and Exchange Commission (SEC) regulations cover more than just companies with publicly traded stock. The SEC released a summary of their enforcement results from the 2021 fiscal year hold valuable lessons for companies that manage investment funds, including those in the private equity and venture capital sector.

Here are few of the highlights from the recent press release of SEC enforcement findings.

The SEC Is As Active as Ever

The 2021 fiscal year noted a 7% increase in enforcement actions and a 33% increase in penalties compared to the prior year. Investment advisors and Investment Companies also accounted for more total new cases, at roughly 28%. One of the ways in which the SEC is increasing its capacity to monitor for compliance is through its use of data analytics and other technology tools, which generally allow reviews of larger volumes of information.

In 2022, you should take extra care to file on time. One filing to be particularly aware of is the Form CRS. This client or customer relationship form provides information about Investment Companies, such as the types of services it provides, any conflicts of interest or legal or disciplinary actions, and fees and costs, among other types of information. Thorough and complete disclosures for SEC reporting will also be vital; omissions and incomplete or inaccurate information could lead to significant consequences.

Crypto Will Need Extra Attention

If your operation deals in digital asset securities, you will want to be particularly vigilant with your monitoring over these activities. The SEC has identified crypto-related pursuits as being susceptible to fraud. During the past year, the SEC has pursued cases against both entities and individuals that had unregistered offerings of digital assets.

Foreign Corrupt Practices Act Continues to Be a Focal Point

The SEC took seriously its enforcement of the Foreign Corrupt Practices Act (FCPA) recently, going after major financial services groups in regards to bribery and internal control failures, among other instances of wrongdoing. The five enforcement actions noted in the press release focused on violations in the area of books and records, internal accounting controls, and bribery. International activities should continue to be treated with particular care and attention.

Whistleblowers for the Win

Whistleblowers received record-breaking support from the SEC, including the highest awards in SEC program history. The SEC brought actions against companies that took actions to prevent whistleblowers from reporting to the SEC, including a broker-dealer and a registered investment adviser. Your organization and its holdings should be careful that employees concerned over activities have adequate protection to voice these concerns to the proper enforcement channels.

Takeaways for Fund Managers

If the SEC found issues in specific areas last year, it will likely target those areas again in the year ahead. Reviewing enforcement actions and compliance findings from the 2021 fiscal year may provide a roadmap for your internal controls and compliance efforts in 2022.

For comments, questions, or more information please contact a member of our team.

Published on February 21, 2022