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Vedder Thinking | Articles SEC Settles Enforcement Proceeding Against a Mutual Fund Adviser for Miscalculating Fee Waiver


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On June 16, 2023, the SEC announced the settlement of administrative proceedings brought against a registered investment adviser for allegedly failing to correctly waive certain advisory fees for a mutual fund it manages consistent with its agreement with the fund. The fund in question is a “fund of funds” that invests primarily in other funds managed by the same adviser. The adviser contractually agreed to reduce its advisory fee to the extent that the adviser received a threshold amount of advisory, supervisory and administrative fees from the underlying funds in which the fund invests that are managed by the adviser. The SEC alleged that between 2011 and 2017, the adviser failed to waive approximately $27 million of the fund’s advisory fees due to an error in the formula the adviser created to be used by the fund’s sub-administrator to calculate the fee waiver amount. 

According to the SEC’s order, the miscalculation occurred because the adviser’s formula failed to incorporate the fund’s use of leverage and the potential impact leverage might have on the waiver calculation. The SEC alleged that the sub-administrator discovered the error and immediately informed the adviser. The adviser subsequently hired third parties to investigate and evaluate the matter and notified the fund’s board and shareholders. The adviser implemented a remediation plan and reimbursed the fund’s shareholders for over $30 million in unwaived fees, lost performance and interest.  

The SEC alleged that the adviser willfully violated Section 206(4) and Rule 206(4)-7 under the Investment Advisers Act of 1940, which require advisers to adopt and implement written policies and procedures reasonably designed to prevent violations. Without admitting or denying the allegations, in settlement of the charges, the adviser agreed to cease and desist from future violations, to be censured and to pay a civil monetary penalty of $2.5 million. As stated in the order, the SEC considered the remedial acts promptly undertaken by the adviser in determining to accept the offer of settlement. 

The order is available here  and the accompanying press release is available here.


Nathaniel Segal


Jacob C. Tiedt


Heidemarie Gregoriev