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Day: September 26, 2018

Private Fund Manager Did Not Provide Notice or Obtain Consent for Principal and Agency Cross-Trades

 A private fund manager agreed to pay a $500,000 fine for failing to disclose, and obtain consent for, transactions for which it acted as a broker and principal.  The SEC maintains that the fund manager received compensation for two transactions whereby one advisory client purchased assets from another client.  The SEC also asserts that the fund manager engaged in a principal transaction when it caused a subsidiary to purchase assets from one client and then subsequently sell them to another client.  The SEC charges the firm with violating Section 206(3) of the Advisers Act for failing to provide written disclosure and obtain consent for the transactions.

OUR TAKE: Moving assets around among client funds may have been common practice before Dodd-Frank required private fund managers to register.  However, Section 206(3) specifically limits such transactions by requiring notice and consent.