On April 7, 2025, the SEC announced the settlement of administrative proceedings brought against a registered investment adviser for allegedly causing its registered investment company client (Fund) to include materially false and misleading information in the Fund’s application to deregister as a registered investment company.

According to the order, the Fund held shares of certain companies that were subject to shareholder class action litigation and the Fund and its shareholders stood to benefit from potential distributions of class action settlement proceeds. The SEC alleged that as part of the board-approved liquidation of the Fund, the adviser failed to consider whether pending class action claims could be monetized for the benefit of the Fund’s shareholders prior to the redemption of their Fund shares. The SEC further alleged that after the December 2016 liquidation of the Fund and redemption of Fund shares, the adviser continued to receive sporadic distributions of class action settlement proceeds related to the Fund’s prior holdings and that the adviser did not distribute the proceeds to the Fund’s former shareholders.  In March 2017, the Fund, assisted by the adviser, filed with the SEC the Fund’s application for deregistration as a registered investment company on Form N-8F.  The SEC alleged that the application incorrectly stated that the Fund had distributed all its assets to shareholders, that the Fund had no remaining assets, and that the Fund was not party to any litigation or administrative proceeding.

The SEC found that the adviser caused the Fund to violate Section 34(b) of the Investment Company Act of 1940, which makes it unlawful for any person to make any untrue statement of material fact in any registration statement, application, report, account, record, or other document filed or transmitted pursuant to the Investment Company Act, or for any person filing, transmitting, or keeping such document to omit to state therein any fact necessary in order to prevent the statements made therein from being materially misleading.  Without admitting or denying the allegations, the adviser agreed to cease and desist from future violations and pay disgorgement, prejudgment interest, and a civil monetary penalty totaling $599,953.  The order acknowledged the remedial acts undertaken by the adviser.

The SEC’s order is available here, and a related SEC press release is available here.