In February 2015, the staff of the Division of Investment Management of the SEC published a Guidance Update reminding mutual fund industry participants of the conflicts of interest that arise when investment adviser personnel accept gifts or entertainment from persons doing business, or hoping to do business, with a fund.
Section 17(e)(1) of the 1940 Act generally prohibits affiliated persons of a fund (e.g., an investment adviser or its personnel) from accepting any sort of compensation (other than regular salary or wages from the fund) for the purchase or sale of property to or for the fund if the affiliated person is acting as agent for the fund. The staff reaffirms its previous interpretation that compensation under Section 17(e) (1) includes gifts and entertainment. The staff notes that the receipt of gifts or entertainment by fund affiliates should be addressed in the fund’s compliance policies and procedures required by Rule 38a-1 under the 1940 Act. The staff suggests that the particular content of a fund’s policies and procedures concerning the receipt of gifts and entertainment will depend on the nature of the adviser’s business. However, the staff cites a blanket prohibition on receiving gifts or entertainment or use of a pre-clearance mechanism for the acceptance of gifts or entertainment as possible measures to address the Section 17(e)(1) prohibition