The SEC’s Division of Examinations recently released a risk alert describing a pattern of deficiencies relating to investment advisers’ use of material non-public information (MNPI). The Staff highlighted the following as areas of concern:
- Alternative Data. Advisers that used data from non-traditional sources beyond company financial statements, filings, and press releases appeared to not have adopted or implemented written policies and procedures reasonably designed to address the potential risk of receiving and using MNPI through such sources.
- “Value-Add Investors”. Advisers did not have—or did not appear to implement—adequate policies and procedures related to investors who are more likely to possess MNPI (e.g., officers or directors of a public company, asset management firm principals or portfolio managers, and investment bankers).
- Expert Networks. Advisers did not appear to adequately track calls with expert network consultants, retain detailed notes from the calls, and monitor trading activity related to companies in industries similar to those discussed during the calls.
- Deficiencies related to Access Persons. The Staff identified advisers who failed to correctly identify “access persons” (as defined in Rule 204A-1(c) under the Investment Advisers Act), ensure that those access persons obtain pre-approval for investments in IPOs and other similar offerings, and maintain adequate records of the holding and transactions of access persons.
The Staff also encouraged industry participants to review their practices, policies, and procedures regarding the topics addressed above.