The SEC has instituted an enforcement proceeding against a fund-of-funds manager that outsourced investment due diligence to a third party that never performed any services. Although the respondent claimed that the third party breached its agreement, the SEC charged that the respondent remained responsible for overseeing the third party and making sure that all marketing statements were accurate. As a result of the third party firm’s failure, the SEC alleges that the respondent made misleading claims about its due diligence process in marketing materials. The SEC also charges the respondent with inflating assets under management figures on its ADV, marketing materials, and due diligence questionnaires in order to induce investment advisers to recommend its funds.
OUR TAKE: Breach of contract by a vendor is no defense to a regulatory action that misrepresents the actual activities undertaken.
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Cipperman Compliance Services provides CCO and compliance services to registered funds and money managers. We customize compliance solutions to fit your business: full or partial compliance outsourcing, consulting engagements, and tailored compliance tools. Cipperman & Company is a unique law firm devoted exclusively to the investment management industry. We work on a wide range of transactional and regulatory matters, but we concentrate on four core areas: Fund Formation, Distribution, Compliance, and Technology.