Disciplinary History in Focus: Exempt Reporting Advisers


The Dodd-Frank Wall Street Reform and Consumer Protection Act mandated that advisers to venture capital funds and/or to small private fund (less than $150 million assets under management) report certain items to the SEC. Dynamic Securities Analytics, Inc. analyzed the disciplinary disclosure items reported by Exempt Reporting Advisers (“ERA”).

Key Findings:
  • 3% of ERAs report regulatory, criminal or civil disciplinary issues
  • 10 firms reported felony convictions or guilty pleas
  • SEC or CFTC entered orders against 26 ERAs or advisory affiliates
  • Small private funds were much more likely to report a disciplinary action than venture funds

 

Enforcement Actions Against ERAs 
 
DSA’s independent analysis identified over 70 Exempt Reporting Advisers with disciplinary disclosures against the firm or advisory affiliates. The most common type of disciplinary history item was a finding by a federal (excluding SEC & CFTC), state or foreign regulator of a violation of an investment-related regulation, with 60 ERAs noting this type of disclosure. Additionally, 24 firms revealed the SEC or CFTC found the firm or an affiliate in violation of a rule or regulation. Twenty ERAs reported that a regulator found the firm or advisory affiliate made a false statement or omission.

The table below provides a selection of disciplinary disclosure items and the count of ERAs that reported the disclosure type for either the firm or an advisory affiliate.

Disclosure table ERA

 

Other Indicators

ERA country word cloud
  • 39% ERAs are based overseas. Foreign-based ERAs report disciplinary disclosure items at a slightly higher rate than US-based firms.
  • The exemption on which the firm relied to qualify as an ERA was very enlightening. 91% of firms reporting disciplinary disclosures relied on the small private fund exemption.