SEC Enforcement Action Targets Non‑Violative Use of MNPI Through Policy and Procedure Failures

In recent years, the SEC has shown an increased appetite for enforcement actions around inadequate compliance policies and procedures, even when the underlying conduct is otherwise non-violative. Taking that approach, the SEC can effectively penalize conduct that it is unable to regulate directly. A recent SEC enforcement action continues that trend and escalates the stakes with a $4‑million fine, despite the offending firm taking steps to ensure material, nonpublic information would remain confidential before it was conveyed to recipients and in the absence of any allegations of insider trading. This article summarizes the SEC’s settlement order, along with key takeaways and insights from industry experts. See our two-part series on why fund managers must adequately support CCOs and compliance programs: “Recent Failures Lead to SEC Enforcement Actions” (Jul. 30, 2019); and “Six Valuable Lessons From Recent Enforcement Actions” (Aug. 13, 2019).

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