February 25, 2019

Jim Lundy Discusses Threat to Small RIA Firms from the SEC’s SCSD Initiative

Chicago partner Jim Lundy was quoted in “Private Fund Limits Raise SEC Overreach Questions” in the February 25, 2019, edition of Compliance Reporter.

The SEC’s Division of Enforcement launched its Share Class Selection Disclosure (SCSD) Initiative one year ago, encouraging firms to self-report violations arising from their selection of more-expensive fund share classes with 12b-1 marketing or distribution fees, when cheaper share classes were available. The SEC said it would offer favorable settlement terms to those firms that came forward by June.

Then, late last year, the Division of Enforcement sent out document requests to firms that didn’t self-report, but which, in the agency’s view, ought to have considered doing so. The letters asked firms to hand over documents related to their share class selection process, fees, and disclosures that were relevant in their decision-making regarding whether to self-report; they also asked for documents regarding the firms’ revenue-sharing practices and disclosures.

Jim discussed the potential peril the SCSD Initiative presented to smaller investment advisory firms given that settlement payments could potentially be so substantial as to cause financial problems for these smaller firms.

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