SEC Accelerates Examination of Newly-Registered Investment Funds
Client Alert | 1 min read | 02.21.14
On February 20, 2014, the SEC's Office of Compliance Inspections and Examinations struck fear into the heart of many newly-registered investment funds by announcing a new initiative to ramp up examinations of funds never previously inspected. The cute name of the program: the "Never-Before-Examined Initiative." The link to the SEC's release is here. The SEC's release is being sent to all registered investment advisers who have not previously been examined.
For the most part, the SEC's release repeats areas of focus well-known to investment funds who have been examined in the past. An ordinary inspection by the OCIE staff will include the following:
- Review of materials to determine if the adviser's compliance program is effective. This includes hiring and empowering a Chief Compliance Officer to administer the program.
- Review of books and records focusing on identification of conflicts of interest and other similar risks, disclosure of material facts concerning conflicts, and actions by the adviser to adopt policies and procedures that properly mitigate and manage those conflicts and risks.
- Review of disclosures concerning the adviser's business, investment activities, and investment performance. Marketing materials will particularly be scrutinized to ensure disclosure of material facts (and that the adviser has not omitted material facts).
- Review of the adviser's portfolio decision-making practices, particularly including allocation of investment opportunities.
- Review of procedures for those advisers who have custody of client assets. (Note that "custody" has a far broader meaning in the investment fund world than what a plain meaning of the term might imply.)
We continue to counsel advance preparation for your first inspection. Compliance firms, law firms and others are well-situated to do a "dry run" for the data that the SEC will collect and analyze. Consider whether any such advance work can and should properly be protected from ordinary disclosure.
Insights
Client Alert | 3 min read | 11.21.25
On November 7, 2025, in Thornton v. National Academy of Sciences, No. 25-cv-2155, 2025 WL 3123732 (D.D.C. Nov. 7, 2025), the District Court for the District of Columbia dismissed a False Claims Act (FCA) retaliation complaint on the basis that the plaintiff’s allegations that he was fired after blowing the whistle on purported illegally discriminatory use of federal funding was not sufficient to support his FCA claim. This case appears to be one of the first filed, and subsequently dismissed, following Deputy Attorney General Todd Blanche’s announcement of the creation of the Civil Rights Fraud Initiative on May 19, 2025, which “strongly encourages” private individuals to file lawsuits under the FCA relating to purportedly discriminatory and illegal use of federal funding for diversity, equity, and inclusion (DEI) initiatives in violation of Executive Order 14173, Ending Illegal Discrimination and Restoring Merit-Based Opportunity (Jan. 21, 2025). In this case, the court dismissed the FCA retaliation claim and rejected the argument that an organization could violate the FCA merely by “engaging in discriminatory conduct while conducting a federally funded study.” The analysis in Thornton could be a sign of how forthcoming arguments of retaliation based on reporting allegedly fraudulent DEI activity will be analyzed in the future.
Client Alert | 3 min read | 11.20.25
Client Alert | 3 min read | 11.20.25
Client Alert | 6 min read | 11.19.25
