FY2024 in Review: SEC Enforcement Actions Against Investment Advisers to Private Funds, Registered Funds, and Retail Clients

In its 2024 fiscal year that ended on September 30, the U.S. Securities and Exchange Commission (SEC or Commission) brought over 130 enforcement actions against investment advisers and their representatives. Here, we provide an overview of key areas of focus and notable actions addressing the following topics:

I. Specific rule enforcement, including

a. sweeps related to the marketing rule, recordkeeping (off-channel communications), and beneficial ownership reporting

b. whistleblower protection rules

c. custody rule

d. pay-to-play rule

II. Conflicts of interest-related practices and disclosures, including

a. fees, expenses, and other undisclosed compensation

b. revenue sharing

c. valuation

d. trade allocation 

III. Misrepresentations, omissions, and inadequate disclosures

IV. Hedge clauses

V. Artificial intelligence

VI. Material non-public information

VII. Litigated actions, including related to “shadow trading,” valuation, expense reimbursement, revenue sharing, and custody rule 

VIII. Compliance failures

Rule Enforcement

Recent and Ongoing Sweeps

The SEC has been actively using market-wide “sweeps” as a way to efficiently investigate similar conduct by multiple investment advisers and to send a stronger message to the market. During the 2024 fiscal year, the SEC brought charges against over 60 investment advisers through enforcement sweeps and other investigations of similar violations.

• Marketing Rule. In September, the SEC charged nine registered investment advisers in an ongoing sweep for violating the Marketing Rule by disseminating advertisements that included untrue or unsubstantiated statements of material fact or testimonials, endorsements, or third-party ratings that lacked required disclosures.¹ Without admitting or denying the allegations, the firms’ settlements included a total of $1,240,000 in penalties that ranged from $60,000 to $325,000, in addition to undertakings.
  
  Earlier in the year, in April, the SEC similarly charged five registered investment advisers with Marketing Rule violations, including advertising hypothetical performance on the adviser’s website without having policies and procedures in place reasonably designed to ensure that hypothetical performance was relevant to the likely financial situation and investment objectives of each member of the advertisement’s intended audience. The advisers agreed to pay $200,000 in combined penalties, which ranged individually from $20,000 to $100,000, after the SEC credited certain advisers for pre-investigation corrective action, and to comply with undertakings.² The SEC brought a similar standalone case in August in which the adviser agreed to pay a $430,000 civil penalty and comply with undertakings.³
  
  In another standalone enforcement action in June, the SEC charged a private fund adviser with disseminating misleading performance advertising to prospective investors by advertising returns experienced by a single investor without disclosing that the returns did not constitute overall fund performance but rather a representative investor’s account, which, at times, substantially differed from the overall performance of the fund.⁴ The adviser agreed to pay $100,000 to settle the charges, with the SEC’s order noting its remedial efforts.
• Off-Channel Communication Recordkeeping. The SEC has continued to charge investment advisers and other registrants for recordkeeping failures. In 2024, the SEC charged 22 broker-dealers, 20 duallyregistered broker-dealers and investment advisers, nine affiliated investment advisers, and five standalone investment advisers for failures to maintain and preserve off-channel communications on personal devices.⁵ The adviser entities were ordered to pay approximately $528.4 million of approximately $568.7 million in combined penalties, with individual penalties of up to $50 million. All but one firm admitted to the facts set forth in their respective SEC orders, and the vast majority agreed to undertakings, including the retention of an independent compliance consultant.
  
  The 2024 year also included the first of several standalone actions against investment advisers for recordkeeping violations, despite the lack of clarity on the SEC’s interpretation of the scope of electronic communications subject to the Advisers Act recordkeeping rule.⁶ Also of note, on the eve of its fiscal year end, the SEC brought its first two settled actions against investment advisers without any monetary sanctions. In the first action, the SEC’s order noted the adviser’s self-reporting, remedial efforts, and cooperation, including its “cooperation in the Commission staff’s investigation of another entity,” and did not require an admission of liability.⁷ In the second action, the SEC again noted the adviser’s selfreporting, remedial efforts, and cooperation, as well as its self-policing of existing policies and procedures going back to 2012. The SEC also found that the adviser had implemented and enforced a compliant textmessaging process in early 2017 that enabled the firm to retain business communications via text, which process the adviser enhanced over time.⁸
• Beneficial Ownership Reporting. On September 17, the SEC charged 11 institutional investment managers for failing to file reports on Form 13F, which they were required to file because they have discretion over more than $100 million in certain securities.⁹ Two firms were also charged with failing to file Forms 13H as required for large traders who trade a significant amount of exchange-listed securities. Nine of the firms agreed to collectively pay more than $3.4 million in penalties to settle the matters, with fines ranging from $175,000 to $725,000. Emphasizing the benefits of self-reporting and cooperation, two of the firms paid no financial penalties.
  
  On September 25, the SEC charged another 13 entities, of which five were investment advisers, and 10 individuals for reporting failures related to Schedules 13D and 13G reports and Forms 3, 4 and 5.¹⁰ Schedules 13D and 13G provide information about the holdings and intentions of investors who beneficially own more than 5% of any registered voting class of public company stock; Forms 3, 4, and 5 are reports used to provide information about public company stock transactions by corporate officers, directors, or certain investors who beneficially own more than 10% of the stock. The SEC also charged two public companies for contributing to the filing failures of their officers and directors and failing to report those filing delinquencies. Collective penalties exceeded $3.8 million, with the adviser firms paying penalties ranging from $75,000 to $375,000.

Click here to view the full Sidley Update.

¹ Link here. 

² Link here. While four of the five advisers received reduced penalties due to corrective actions, the SEC’s order noted remedial acts taken by the fifth adviser, as well. 

³ Link here. Here, too, the SEC noted that it considered the adviser’s cooperation in determining to accept the settlement. 

⁴ Link here. 

⁵ Links here, here, here, here, and here. In September 2024, the Commission also brought its first charges against 12 standalone municipal advisers for similar recordkeeping failures, with the firms collectively paying more than $1.3 million in civil penalties to settle the actions. Link here.

⁶ Link here. For additional information, see the following Sidley alert: SEC Files First Charges Against Standalone Investment Adviser for Off-Channel Communication Recordkeeping Failures.  

⁷ Link here. 

⁸ Link here. See also Commissioners Hester Pierce, Mark Uyeda statement.

⁹ Link here.

¹⁰ Link here.