The United States Securities and Exchange Commission (“SEC”) has charged a non-U.S. firm for allegedly providing investment advisory services to U.S. clients without being SEC registered. This is the latest SEC enforcement action against foreign investment managers who conduct business with U.S. persons.
On October 18, 2016, the SEC announced a settled enforcement action against an Israel-based financial institution and two of its subsidiaries. The SEC Order claimed that the firm “provided investment advice and induced securities transactions for U.S. customers for more than a decade without registering as an investment adviser or broker-dealer as required under U.S. securities laws.” The SEC asserted that the firm violated the investment adviser registration provisions of Section 203(a) of the Investment Advisers Act of 1940 and the broker-dealer registration provisions of Section 15(a) of the Securities Exchange Act of 1934. The firm agreed to pay $1.6 million in disgorgement and penalties to settle the matter.
According to the SEC, the firm received compensation for providing investment advice to U.S. clients using various U.S. jurisdictional means. The firm’s relationship managers allegedly travelled to the U.S. over 65 times to meet with existing and prospective clients and provide investment advice. During these trips the relationship managers engaged in at least 245 individual meetings with both existing and potential clients, the SEC claimed. In addition to the U.S. travel, the relationship managers used the phone, mail, and e-mail to communicate with clients located in the United States and discuss securities transactions and investment recommendations. According to the SEC, at no time was the firm registered under the U.S. federal securities laws as either a broker-dealer or an investment adviser, and no exemption from such registration was available.
This action again highlights the SEC’s aggressive approach to cross-border enforcement and the regulatory risks to non-U.S. advisers who wish to access U.S. markets without being SEC registered.
ACA first alerted clients to the SEC’s heightened scrutiny on foreign firms and their registration status in March of 2014, and this scrutiny has continued with a string of similar cases. To read further on this issue please see:
SEC Enforcement Case Highlights Importance of Registration for Non-US Based Brokers and Advisers
SEC Continues to Take Action Outside of the United States
For questions regarding this alert or for more information on ACA’s SEC registration and consulting services, please contact Andrew Petillon or by telephone at +44 (0)20 7042 0500