SEC Charges Investment Adviser - Signaling Importance of Accurate Disclosure of AML Procedures

The U.S. Securities & Exchange Commission ("SEC") recently announced settled charges against an investment adviser for misrepresentations regarding its anti-money laundering ("AML") procedures and compliance failures.¹ As we outlined in our recent client alert, investment advisers will be required by the Financial Crimes Enforcement Network ("FinCEN") to implement an AML program by January 1, 2026. This SEC action does not shed new light on the scope of SEC jurisdiction over AML. Instead, it serves as a reminder that if an investment adviser says it is voluntarily complying with AML due diligence laws by conducting AML due diligence, it needs to do so. An investment adviser must also accurately describe its AML program once the anticipated AML requirement for investment advisers commences.

According to the SEC's order, the investment adviser stated in its offering memoranda and other disclosure documents provided to investors that the company was voluntarily complying with AML requirements, although those laws did not specifically apply to investment advisers.² The investment adviser stated to investors that it performed specific AML due diligence reviews in relation to prospective investors and had ongoing monitoring of existing investors. The SEC found that these statements were not accurate. As a result, among other things, the SEC ordered the investment adviser to pay $150,000 in civil money penalties.

Historically, investment advisers have not been subject to compliance imposed by the Bank Secrecy Act as it relates to AML procedures and countering the financing of terrorism ("CFT") requirements. In fall 2024, FinCEN, a bureau of the Department of Treasury, adopted rules subjecting most investment advisers to increased regulatory requirements including the implementation of an AML program.

Although the investment adviser was not yet legally required to comply with AML laws, the SEC stated that bringing the action reinforces the duty of investment advisers to not mislead investors related to the level of investment risk being undertaken and to perform the tasks they are representing are being completed.³ The SEC found that the company did not always perform the AML due diligence as it was described in its offerings and other documents.

As a reminder, obligations under the new FinCEN rule include an AML/CFT program that is risk-based and reasonably designed, as well as the adoption of policies and controls, "to prevent the investment adviser from being used for money laundering, terrorist financing, or other illicit finance activities."⁴

It is vital that all investment advisers ensure the implementation of sufficient internal controls, including policies and procedures, to address the AML requirements by the compliance deadline of the new FinCEN AML rule. This recent SEC activity signals the importance of ensuring both an adequate AML program and accurate disclosure are in place. While it is difficult to predict whether AML will continue to be an important initiative under the new administration, companies should be aware of any upcoming AML requirements because they can be the method in which the SEC seeks to find chargeable offenses when an investigation does not find sufficient evidence of more serious charges. We want to reiterate the importance that investment advisers consult with counsel to ensure the sufficiency of existing and upcoming AML programs to ensure such programs will withstand regulatory examination. In addition, investment advisers should continue to ensure that all disclosure to investors is accurate.

_{1 https://www.sec.gov/newsroom/press-releases/2025-8?utm_medium=email&utm_source=govdelivery
2 https://www.sec.gov/files/litigation/admin/2025/ia-6823.pdf
3 https://www.sec.gov/newsroom/press-releases/2025-8?utm_medium=email&utm_source=govdelivery
4 https://www.whitecase.com/insight-alert/fincen-issues-final-sweeping-aml-requirements-registered-investment-advisers-eras}

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_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

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