SEC Watch: Monthly Takeaways For Asset Managers - June 2026

No More “No Deny” Provisions for Settling SEC Respondents

Summary: The SEC rescinded Rule 202.5(e), which had codified the SEC rule requiring settling parties to agree that they would not publicly deny the SEC’s allegations. The change brings the SEC in line with the majority of federal agencies, including the CFTC which announced a similar change in early June. New language reflecting the change is already appearing in SEC orders.

• Notably, the SEC’s rescission of Rule 202.5(e) was retroactive, and the Commission will not enforce existing “no deny” provisions that have already been entered, and will take no action for breaches of such provisions.

Takeaway: The absence of “no deny” provisions in SEC settlement orders may lead to quicker settlements but could also come with some costs. For example, the ability for settling parties to deny the SEC’s allegations could result in more detailed factual findings if the SEC seeks to bolster the credibility of its orders in anticipation of a public denial.

Best Practice Tip: SEC orders must be approved by the Commissioners, and the current Commission is likely to continue the historical practice of restrained, negotiated charging documents. Time will tell if future Commissions will direct Staff to negotiate more comprehensive orders in the face of potential public denial; in either event, developing a careful, proactive media and investor strategy to capitalize on this important change is now more important than ever for firms facing SEC action.

Spotlight on Sensible Trade Allocation Practices

Summary: The SEC announced settled charges against a registered investment adviser in an order that found that the adviser did not take reasonable steps to detect and prevent its former co-CIO’s alleged cherry-picking scheme. At the end of 2024, the DOJ and SEC announced charges against the RIA’s former co-CIO for a cherry-picking scheme that allegedly disproportionately allocated hundreds of millions of dollars in trades with net realized and unrealized first-day gains to favored accounts and hundreds of millions of dollars in trades with net realized and unrealized first-day losses to disfavored accounts. The SEC’s recent order found that despite knowing that the former co-CIO’s trading and allocation practices were different than other portfolio managers at the firm, the adviser did not take reasonable steps to detect and prevent the conduct. The SEC’s order charged the RIA with violations of Sections 206(2) and 206(4) of the Advisers Act and Rule 206(4)-7 thereunder, as well as failure to supervise under Section 203(e)(6). Without admitting the SEC’s findings, the RIA agreed to pay a $100 million civil penalty.

Takeaway: The settlement underscores the need for advisers to adopt and implement reasonable trade allocation policies and procedures that avoid, where possible, the passage of time before allocation decisions are made. The settlement also illustrates the risks of consolidating allocation discretion in a single person without sufficient compliance oversight.

Best Practice Tip: Advisers should review their trade allocation policies and procedures and take steps to pressure test them to confirm that practices are aligned with expectations. Advisers should also consider additional training around trade allocation policies, particularly with respect to portfolio managers who may be vested with allocation responsibilities.

David Woodcock’s Inaugural Speech as Enforcement Director

Summary: In his first public remarks, delivered on May 14 at the annual MFA Conference, Enforcement Director David Woodcock struck a deliberately measured tone, noting that the Enforcement Division will hew closely to its traditional priorities, while taking care to note that the Division remains intensely focused on conduct in the private funds sector; his full remarks in that regard bear quoting: “the private fund space is also always subject to close attention. Private investment markets and efforts to broaden access to retail investors can be quite positive, but we must, and will, remain vigilant. We are attuned to potential risks relating to liquidity, fees, valuations, and conflicts of interest—not only at the private fund adviser level but throughout the distribution chain. Firms must ensure their representatives understand the products they sell and the investment profiles, risk tolerance, and liquidity needs of their clients.”

Takeaway: Notwithstanding widespread commentary on the perceived shrinking footprint of SEC Enforcement, Woodcock’s remarks reflect a clear intent to cast a vigilant eye across the asset management sector, with particular focus on the array of potential issues that can accompany the sale of alternative investment products to retail investors.

Best Practice Tip: Woodcock laid out a concise roadmap of where advisers should be focused, with an emphasis on continuously ensuring that policies and procedures are up to date with respect to liquidity management, fee and expense calculation and allocation, valuation, conflicts of interest and the distribution of products into retail channels.

Prepared by Your Simpson Thacher Asset Management Regulatory and Enforcement Team»

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