Enforcement

SEC Charges Two Entities in Alleged $130 Million Fraud Scheme Using False Form ADV and Form D Filings

Summary: On October 29, the SEC charged two foreign-operated, Colorado-incorporated entities over a scheme that raised more than $130 million from tens of thousands of retail investors. The SEC alleges they promised risk-free returns from crypto trading “signals,” that one claimed to be the world’s largest hedge fund and an SEC-registered adviser, and that false Form ADV and Form D filings were used to suggest regulatory approval.

Why It Matters: The case shows how public Form ADV and Form D filings can be misused to imply regulatory approval. The SEC’s investor alerts warn that scammers are using exempt reporting adviser filings to appear legitimate.

Potential Action: Advisers should confirm their marketing never implies SEC approval or endorsement of their registration, monitor for impersonation of their firm or Form ADV, and direct clients to verify advisers through Investor.gov.

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SEC Faults New York Adviser for Not Disclosing Conflicts Tied to Affiliated Broker-Dealer’s Revenue

Summary: On October 30, the SEC settled charges against a New York investment adviser for failing to disclose conflicts tied to its affiliated broker-dealer’s revenue from client margin-interest markups and cash sweep funds. The SEC also found that a liability disclaimer, or “hedge clause,” in its retail advisory agreements was misleading. The adviser adopted a policy against such clauses in 2023, after an SEC examination, but never revised the agreements. It agreed to pay $364,590.

Why It Matters: The order shows that affiliate compensation must be fully and fairly disclosed, and that hedge clauses draw scrutiny even when the agreement preserves clients’ non-waivable rights. Adopting a policy without fixing the agreements did not avoid a charge.

Potential Action: Advisers with affiliated broker-dealers should map affiliate revenue, including margin interest and cash sweep arrangements, against Form ADV disclosure, and review all advisory agreements, including legacy forms, for liability limitations that policies prohibit.

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What Regulators Are Saying

CFTC Chairman Says Equity Perpetual Futures Can Begin Trading on Dually Registered Exchanges

Summary: On November 3, CFTC Chairman Michael Selig said perpetual futures on individual equity securities can begin trading for the first time on CFTC-registered exchanges that are also SEC notice-registered to trade security futures products. He said the contracts were deemed approved by the CFTC as security futures products, so both CFTC and SEC frameworks apply, and presented the step as a product of CFTC–SEC harmonization.

Why It Matters: The statement extends perpetual futures beyond digital commodities into traditional securities, and signals that the CFTC and SEC intend to resolve overlapping-jurisdiction questions through coordination rather than disputes.

Potential Action: Advisers and funds considering equity perpetual futures should confirm that mandates, investment policies and offering documents permit them, assess whether CPO or CTA registration or exemptions are implicated, and review risk disclosure and valuation procedures before trading.

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In the News

Judge Appears Reluctant to Block SEC Subpoena for Proxy Adviser’s Client Voting Data

Summary: On October 29, a Pennsylvania federal judge appeared reluctant to block the SEC’s subpoena to proxy adviser Institutional Shareholder Services, Law360 reported. The subpoena seeks client-specific proxy voting data. ISS, a registered investment adviser, has raised First Amendment and retaliation concerns. The SEC filed the enforcement action on September 4 and says it has not concluded that ISS violated the securities laws.

Why It Matters: The dispute tests the SEC’s reach when it seeks client-level proxy voting data from a registered adviser, and may inform how advisers respond to exam and investigative requests touching on proxy voting and client confidentiality.

Potential Action: Advisers that vote proxies or provide proxy voting advice should confirm that voting records are complete and retrievable, review confidentiality terms in client agreements for regulatory production carve-outs, and prepare a protocol for responding to exam and subpoena requests.

Read More Here (Law360)

Events

CFTC to Host December 15 Roundtable on 24/7 Derivatives Trading

Summary: On October 28, the CFTC announced an industry roundtable on December 15 at its Washington headquarters to discuss the viability of moving derivatives markets to 24/7 trading. Topics include overnight trading, tokenization, infrastructure and staffing needs, and operational readiness. The event builds on the CFTC’s summer request for comment and will be livestreamed. Chairman Selig said the CFTC will not take a one-size-fits-all approach. Public speaker nominations are welcome.

Why It Matters: The event gives derivatives market participants a public venue to shape the CFTC’s approach to round-the-clock trading across asset classes, with operational, staffing and clearing implications for exchanges, FCMs and managers that trade futures.

Potential Action: Firms that trade, clear or advise on derivatives should consider submitting speaker nominations, assess their own overnight trading, valuation, liquidity and staffing readiness, and watch for the agenda and registration details, which the CFTC will post later.

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Comments Due November 9 on SEC Proposal to Rescind Adviser Pay-to-Play Rule

Summary: Comments on the SEC’s proposal to rescind Rule 206(4)-5, the Advisers Act pay-to-play rule, are due November 9, 60 days after Federal Register publication on September 10. The proposal would also eliminate related recordkeeping requirements. The rule and those requirements remain in effect unless and until a final rescission is adopted. Comments should reference File No. S7-2026-31.

Why It Matters: Rescission would replace a bright-line political contribution regime with a principles-based approach under Advisers Act antifraud and fiduciary provisions, and would matter particularly to private fund advisers that are exempt reporting advisers.

Potential Action: Advisers should decide whether to comment by November 9, identify which controls rest solely on Rule 206(4)-5, and keep existing pre-clearance, monitoring and recordkeeping in place, noting that state and local pay-to-play laws apply independently.

Read More Here (SEC)