July 18, 2025
What happened?
On July 15, 2025, the SEC announced settled charges against a CCO of a registered investment adviser for altering records and producing fictitious records in response to SEC examination requests for information.
SEC examiners performed an examination of the registered investment adviser (“RIA”) and requested documents and information related to the adviser’s pre-clearance trading policy applicable to some of the adviser’s supervised persons. As stated in the order, when responding to an SEC request for pre-clearance trading forms, the CCO modified the dates and/or filled in missing information on many of the forms. The altered documents made it look like certain forms were completed correctly and signed on the date of the transactions. In multiple instances, a supervised person never completed a form for a particular trade. The CCO added trader’s signatures to false documents, without the trader’s knowledge or authorization, to fill these gaps. The CCO’s actions covered up violations of the RIA’s written policies and procedures.
The SEC’s order found that the CCO caused the RIA to violate Sections 204(a) and 206(4), which cover recordkeeping subject to SEC examinations and require an investment adviser to adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act. The CCO consented to the order, which included paying a civil penalty of $40,000 and being barred from acting in a compliance capacity in the industry for a period of three years.
What does this mean for me?
It is important to note that the charges are not for exceptions to the RIA’s pre-clearance trading policy, but for covering up exceptions to the trading policy with altered and fictitious records. If your policies and procedures require trade pre-clearances, follow those policies as written. If a supervised person fails to pre-clear a trade where required by your policies, record it as a trade exception and work with that individual to avoid future violations of your policies and procedures. Falsifying a pre-clearance form during an SEC examination risks a referral to the Division of Enforcement. Monetary penalties and an industry bar can follow.
If you need assistance implementing trade pre-clearance policies or monitoring code of ethics violations at your firm, contact us.
