SEC Affirms Its Enforcement Authority With New Anti-Fraud Rule Under the Advisers Act


The Securities and Exchange Commission (the “SEC”) has a new antifraud tool at its disposal. As we reported to you earlier this year,[1] the SEC proposed Rule 206(4)-8

(the “Rule”) under the Investment Advisers Act of 1940 (the “Advisers Act”) in response to a ruling by

the Court of Appeals for the D.C. Circuit Court in Goldstein v. SEC.[2] The SEC was concerned that

the Court’s ruling created uncertainties with regard to the SEC’s enforcement authority and the application of certain anti-fraud provisions of the Advisers Act to advisers to investment pools.

On July 11, 2007, the SEC unanimously adopted the Rule as proposed to clarify its power to bring enforcement actions against advisers who defraud investors or prospective investors in connection with pooled investment vehicles. On August 3, 2007, the SEC issued the release adopting the Rule. [3] The new Rule does not impose additional filing, reporting or disclosure obligations; nor does it

create a private right of action or impose additional fiduciary duties on advisers. Advisers to pooled

investment vehicles should take note, however, that the new Rule potentially increases the risk of enforcement action for negligent conduct, in addition to reckless or deliberately deceptive conduct, in connection with a finding of fraudulent activity.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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