The following are summaries of key developments in the investment management industry. Full articles covering these and other topics can be found using this link.

SEC Announces First-of-Its-Kind Whistleblower Award To an Audit and Compliance Professional

On August 29, 2014, the Securities and Exchange Commission (SEC) announced that it was rewarding an audit and compliance professional with a whistleblower award of more than $300,000 for reporting company wrongdoing to the SEC after the company failed to take action. This is the first whistleblower award granted to an employee who performs an audit and compliance function. The employee first reported the problem internally, but contacted the SEC when the company failed to take action within 120 days of the internal report. The information provided by the employee directly led to a successful SEC enforcement action against the company.

In order to merit an award, the information reported must result in an SEC enforcement action that imposes sanctions exceeding $1 million. In this case, the award of more than $300,000 represents 20 percent of the money collected by the SEC as a result of the enforcement action against the company. This award serves as a strong reminder that companies should take prompt action to address internal reports of potential violations of federal securities laws.

SEC Issues No-Action Letter To Allow for Amendment of a Sub-Advisory Agreement without Shareholder Approval

On July 28, 2014, the SEC’s Division of Investment Management issued a no action letter stating that it would not recommend enforcement action under Section 15(a) of the Investment Advisers Act of 1940 if an investment adviser and a sub-adviser revised their sub-advisory agreement to reallocate the advisory fee paid by the advised fund without obtaining the approval of the fund's shareholders. The SEC staff's decision relied upon representations that the change in the allocation of the fee arrangement will not increase the total amount of advisory fee paid by the fund, and the level and nature of services provided by the advisers to the fund also will not change.

Because the overall fee to the Fund and its shareholders will remain consistent under the amendment, and because the amendment will not reduce or modify the nature or level of service provided in any way, SEC staff decided not to recommend enforcement action against any of the parties if the sub-advisory agreement was amended as proposed without shareholder approval.

To learn more about these developments and other investment management news, please contact a member of Ballard Spahr's Investment Management Group or the attorney with whom you regularly work.


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