The Securities and Exchange Commission's new enforcement chief, David Woodcock, said Wednesday that in the investment advisor space, the Enforcement Division "will remain active."
The agency "will continue to pursue matters involving misappropriated client assets, inadequate safeguarding of assets; misleading strategy disclosures; undisclosed fees and expenses; fraudulent valuations and mismarking; prohibited trading practices; and undisclosed conflicts of interest," Woodcock said at the Managed Funds Association's Legal & Compliance conference.
Recent advisor cases, Woodcock continued, illustrate this focus.
In one settled matter, the commission "found that a private fund advisor sold loans from its inventory to client funds at prices it represented as fair value but instead used par value less unamortized fees," Woodcock said. "During the early days of the pandemic, the firm continued this practice without assessing the market disruption's effect on fair market value, despite observable signs of widening spreads and rising rates."
In another matter, the agency "filed two litigated complaints, alleging Ponzi-like schemes involving more than $275 million raised from more than 250 investors," Woodcock continued.
"A second complaint charged the portfolio manager who allegedly invested his private fund client in the scheme despite his undisclosed conflicts of interest and awareness of red flags," Woodcock said.
He added that the cases remain ongoing.
As to private credit, "when looking at this asset class, we should remember that it was prior banking regulatory decisions that constricted financing for small and growing businesses, which created the opening — and need — for private credit to expand rapidly," Woodcock said. "There are stresses in some portfolios and developments playing out more broadly across this sector, and we are monitoring the situation."
The agency is also reinstituting the Retail Fraud Working Group, "which will focus specifically on protecting retail investors and strengthening coordination with our state and federal partners." Reestablishing this group, he said, "is one of my earliest priorities, and you will hear more about this in the coming weeks."
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