Regulatory Compliance Association Reviews

Administrative Order

Administrative Order for In re Cranshire Capital Advisors

Administrative Order

Fairmont Southampton, Bermuda
Date: April 17 – 19, 2016

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16 hours of CLE and CPE (Accounting & Auditing Credit)

Over the past month, the SEC filed two enforcement actions citing Fund Managers for negligently allocating compliance, legal and/or operating expenses.

A careful review reveals an emerging trend: the SEC plans to strictly scrutinize the language contained within a Fund Manager’s PPM, LPA and Management Agreement to verify authorization for each expense allocation.

In the most recent action, the SEC dedicates several paragraphs to analyze specific language used within the Fund Manager’s offering documents and management agreement, and concludes that these provisions failed to authorize the Fund Manager’s allocation of certain expenses.

For example, the Fund Manager’s offering documents and management agreement provided for the Fund to pay “legal fees”. However, the SEC’s Order concluded that the generic language failed to authorize the allocation of fees charged by an attorney for compliance consulting.

Given the strict scrutiny examination and enforcement staff plan to use for offering documents and management agreements, firms should consider conducting a comprehensive review and analysis of their fund documents and expense allocation practices.

If you wish to review the entire Administrative Order, CLICK HERE