On December 12, 2024, the Securities and Exchange Commission (“SEC”) filed a litigated complaint (the “Complaint”) in United States District Court for the District of Connecticut against a hedge fund manager (the “Firm”) registered with the SEC as an investment adviser alleging that the Firm violated Section 204A and 206(4) of the Investment Advisers Act of 1940 (“Advisers Act”) by failing to maintain and enforce policies and procedures reasonably designed to prevent the misuse of material non-public information (“MNPI”), particularly as to a consultant the Firm utilized who allegedly acted upon both the public and private side of the Firm’s information barriers in connection with information received from creditors’ committees. SEC v. Silverpoint Capital L.P., 24-cv-2018 (D. Conn.). 

On January 6, 2017, the Commissioners of the United States Securities Exchange Commission (“SEC”) partially overturned an administrative law judge’s (“ALJ”) initial decision finding that Harding Advisory LLC (“Harding”), and its principal, Wing F. Chau, committed fraud in connection with selecting assets for certain collateralized debt obligations (“CDOs”) in violation of the Securities Act of 1933 (“Securities Act”) and the Investment Advisers Act of 1940 (“Advisers Act”).  In the Matter of Harding Advisory LLC and Wing F. Chau, Admin. Proc. File No. 3-15574 (Jan. 6, 2017) (opinion of the commission).  Specifically, the Commissioners overturned the ALJ’s determination that Harding failed to follow its standard of care in selecting certain collateral, while agreeing with the ALJ’s determinations that Harding had an undisclosed conflict of interest and violated its fiduciary duties in connection with the selection of other collateral.  In addition, the Commissioners increased the amount of disgorgement ordered, finding that Harding had engaged in “extreme recklessness” by favoring certain clients over others.

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On May 26, 2016, in SEC v. Graham, the Eleventh Circuit became the first circuit to hold that claims brought by a government agency for disgorgement and declaratory relief are subject to the five-year statute of limitations set forth in 28 U.S.C. § 2462.  The panel held that the disgorgement and declaratory relief the SEC sought were functionally identical to “forfeiture” and “penalties,” respectively, as defined by Section 2462, but that the injunctive relief sought by the SEC was not time-barred.  Graham appears to create a circuit split that would prompt Supreme Court review, as prior courts have found that disgorgement was not subject to the limitations period in Section 2462.

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