Commission Charges First Stand-Alone Investment Advisor in Off Channel Communications Enforcement Action

The SEC’s sweep of off-channel communications enforcement actions over the past several years has now extended to a stand-alone private fund investment adviser for the first time. Recordkeeping requirements for investment advisers are narrower in scope than those that apply to broker-dealers, and extend to written communications relating to: (i) recommendations made or proposed to be made and advice given or proposed to be given; (ii) receipt, disbursement, or delivery of funds or securities; (iii) placing or execution of orders to purchase or sell securities; and (iv) predecessor performance. In the latest enforcement action, the SEC order found that employees throughout the advisory firm communicated about firm-related business internally and externally using personal texting platforms and other electronic communication services that were not retained. The SEC order found that the off-channel communications violated both the Investment Advisers Act of 1940 recordkeeping rule and the firm’s own policies and procedures, which prohibited off-channel communications and permitted surveillance of personal devices to review for such communications. While it remains unclear how the SEC will generally interpret and enforce off-channel communications violations of Advisers Act rules and assess penalties, it seems likely that additional stand-alone investment adviser off-channel enforcement actions may ensue.

Click here to read the SEC press release.
Click here to read the SEC Order charging violations for off-channel communications.