Enforcement

SEC Updates Division of Enforcement Manual

Summary: The SEC’s Division of Enforcement announced updates to its Enforcement Manual, the internal document that guides staff in conducting investigations and recommending enforcement actions. The revisions clarify and refine procedures relating to investigative authority, use of compulsory process, cooperation credit, approvals, and other internal processes. While the Manual does not create substantive rights or new legal obligations, it provides insight into how Enforcement staff approach investigations and case development.

Why it matters: Although the Manual governs internal SEC operations, updates can signal shifts in emphasis, process, or expectations. For investment advisers and private fund managers, understanding how the Division structures investigations, including how it evaluates cooperation, remediation, and self-reporting, is critical. Procedural refinement may influence how quickly matters escalate, how testimony is handled, and how resolution discussions unfold.

Potential Action: Firms should review their regulatory-response protocols, including document retention practices, internal investigation procedures, and escalation frameworks. Advisers may also consider reassessing policies related to voluntary self-reporting and cooperation to ensure alignment with current SEC practices. Periodic mock exam and enforcement-readiness reviews remain a prudent risk-management measure.

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US v. Heppner (SDNY): Court Finds AI-Generated Documents Not Privileged

Summary: In US v. Heppner, Judge Jed Rakoff of the Southern District of New York held that documents a criminal defendant generated using a commercial version of Anthropic’s Claude AI platform were not protected by the attorney-client privilege or the work product doctrine. The court found the materials were not communications with counsel, were not created for the purpose of obtaining legal advice and were not confidential given the platform’s terms permitting data use and disclosure. The court also ruled that work product protection did not apply because the documents were not prepared at the direction of counsel and did not reflect defense strategy. Simply forwarding AI-generated materials to an attorney did not retroactively create privilege.

Why it matters: This decision highlights the risks associated with using commercial AI tools in connection with legal or regulatory matters. Disclosure to a third-party platform, especially where confidentiality is disclaimed, can undermine claims of privilege. For investment advisers and private fund managers increasingly adopting AI tools, the ruling underscores the need for careful governance when AI intersects with internal investigations, enforcement exposure, or sensitive compliance analysis.

Potential Action: Firms should review AI usage policies to ensure legal and compliance-related matters are not routed through public AI platforms without clear contractual confidentiality protections. Engagement of counsel should precede AI-assisted work involving litigation or regulatory risk, and enterprise AI agreements should be carefully vetted to confirm that privilege-sensitive information remains protected.

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Rulemaking

SEC Approves Amendments to FINRA Rule 3220 (Gifts and Gratuities)

Summary: The SEC issued an order (Release No. 34-104830) approving a FINRA proposed rule change to amend Rule 3220 (the “Gifts Rule”). The amendments increase the annual aggregate limit on non-cash gifts and gratuities that associated persons may give to any other person from $100 to $300, modernizing a limit that had been unchanged since 1992. The order also adopts conforming amendments to several non-cash compensation rules and adds supplementary material to codify and clarify interpretive guidance on valuation, aggregation, and supervision/recordkeeping.

Why it matters: The Gifts Rule is a longstanding SRO standard that broker-dealers must follow to avoid undue influence or conflicts of interest through non-cash items (meals, tickets, etc.). Increasing the limit and clarifying valuation/aggregation mechanics affects how firms track, supervise, and document non-cash compensation and gifts. Clearer guidance on how and when the rule applies — including when it does not apply to individual retail customers — helps firms align internal policies with regulatory expectations and avoid exam deficiencies.

Potential Action: Broker-dealers should update written supervisory procedures (WSPs), training, and tracking systems to reflect the $300 aggregate limit and the updated valuation/aggregation approach (e.g., how to value tickets and allocate multi-recipient items). Investment advisers that reference FINRA standards in their manuals may also consider revising relevant policies and disclosures for consistency.

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What Regulators are Saying

CFTC Chairman Selig Announces Senior Staff Appointments (Release 9184-26)

Summary: On February 23, 2026, CFTC Chairman Michael S. Selig announced four senior staff appointments within his office, including the appointment of Brooke Nethercott as Director of the Office of Public Affairs and Emma Johnston as Senior Agriculture Advisor to the Chairman. The announcement highlights leadership changes aimed at supporting the Commission’s communications, policy, and market oversight functions.

Why it matters: Senior staff appointments within the CFTC can shape how the agency communicates with the public and stakeholders, prioritizes policy areas (e.g., agriculture markets), and manages regulatory initiatives. These personnel decisions also offer insight into the Chairman’s strategic focus and organizational priorities as the Commission navigates evolving markets and rulemakings.

Potential Action: Firms should monitor how leadership changes may influence CFTC public statements, stakeholder engagement, and regulatory emphasis, particularly in areas like derivatives market policy, agricultural risk hedging, and public affairs messaging. Staying aware of agency leadership shifts can help compliance teams anticipate potential changes in enforcement focus, interpretive guidance, and outreach efforts.

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In the News

Bitcoin Financial Services Firm Two Prime Registers as a CFTC Commodity Trading Advisor

Summary: Two Prime Inc. — an institutional bitcoin financial services provider, has registered with the U.S. Commodity Futures Trading Commission (CFTC) as a commodity trading advisor (CTA) and become a member of the National Futures Association (NFA). This registration allows the firm to provide advice on regulated derivatives (such as futures, options, and swaps) to qualified clients and expand its suite of institutional services. The firm also recently completed SOC 1 Type 1 and SOC 2 Type 1 audits validating key internal controls.

Why it matters: Dual registration with both the CFTC and NFA signals Two Prime’s commitment to regulated oversight as it deepens its role in advising institutions on sophisticated bitcoin derivative strategies. For the broader market, this development reflects continued institutional maturation in digital-asset services and the increasing intersection between traditional regulatory frameworks and crypto-related products.

Potential Action: Advisers and compliance teams should note that CTA registration subjects firms to CFTC/NFA requirements — including disclosure, recordkeeping, supervision, and anti-fraud obligations — when offering advice on commodity interests, including cryptocurrency derivatives. Understanding how CTA obligations interact with SEC fiduciary duties and digital asset regulation remains a key consideration for advisers engaged in digital asset strategies.

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Events

SEC Announces 45th Annual Small Business Forum on Capital Formation

Summary: On February 13, 2026, the SEC announced it will host its 45th Annual Government Business Forum on Small Business Capital Formation at SEC headquarters in Washington, D.C. on March 9, 2026 (1:00–5:00 p.m. ET), with a live webcast option. The Forum is organized by the SEC’s Office of the Advocate for Small Business Capital Formation and is intended to gather feedback from the public and private sectors on policy changes that could improve how entrepreneurs, small businesses, and smaller public companies raise capital.

Why it matters: This Forum is one of the SEC’s primary structured channels for surfacing capital-formation recommendations that can influence Commission priorities and, ultimately, proposals delivered to Congress. For market participants, particularly those advising emerging companies, private funds investing in early-stage businesses, and firms involved in IPO readiness, topics discussed here often preview where the SEC may focus on reducing friction (or tightening guardrails) in the capital-raising ecosystem.

Potential Action: Firms and market participants that want to influence policy can submit recommendations in advance by emailing smallbusiness@sec.gov by 12:00 p.m. ET on March 5, 2026. The SEC will also open public online voting to prioritize recommendations at the end of the March 9 event (with voting open until 9:00 p.m. ET).

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About Orical

Orical is a trusted leader in investment management compliance consulting and compliance technology solutions. Founded by experienced investment management attorneys and former C-Suite executives, Orical has spent over 15 years helping investment advisers, private funds, and asset managers meet regulatory requirements with confidence. Our team delivers practical, business-focused compliance solutions designed to reduce risk, streamline operations, and navigate complex SEC and regulatory challenges.

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