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Large Investment Manager to Pay $1.5 Million for Failing to Supervise Consultant

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The SEC censured and fined a large investment manager $1.5 Million for failing to subject to its Code of Ethics a third party consultant that was privy to material nonpublic information.  The SEC charges that the consultant, who assisted the in-house portfolio management team with investment recommendations and company meetings, traded during blackout periods that would have been prohibited had he been deemed an “Access Person” under the Code.  The consultant also served on the boards of companies in which the funds invested.  The SEC faults the firm for failing to have a process to determine that the consultant should have been subject to the trading restrictions and reporting obligations of its Code of Ethics.

OUR TAKE: When considering the application of the Code of Ethics, the substantive duties matter more than the person’s employment status.  Our advice is to bring under the Code anybody who has information related to the investment process or portfolio holdings.

http://www.sec.gov/litigation/admin/2016/ia-4401.pdf