On September 19, 2024, the SEC announced the settlement of administrative proceedings brought against a registered investment adviser for allegedly making misleading statements regarding how it managed investments for clients and for failing to maintain adequate written policies and procedures governing the implementation of its investment criteria.

According to the order, from at least 2019 to March 2024, the adviser represented in various public disclosures that it used a science- and data-driven proprietary methodology to evaluate companies and that it would not invest in companies that have any degree of participation in certain enumerated activities or products that the adviser determined did not align with "biblical values."  The SEC alleged that the adviser misrepresented its research process, did not apply its investment criteria consistently, invested in companies that should have been excluded based on the adviser’s stated investment criteria and had a research process that failed to prevent departures from its stated investment criteria. The SEC also alleged that the adviser failed to adopt written policies and procedures establishing a due diligence process to support the representations made to investors and setting forth a process for evaluating companies’ activities as part of its investment process.

The SEC found that the adviser willfully violated (1) Section 206(2) of the Investment Advisers Act of 1940, which makes it unlawful for any adviser to engage in a transaction, practice or course of business that operates as a fraud or deceit upon a current or prospective client; (2) Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder, which make it unlawful for any investment adviser to make any untrue statement of a material fact or to omit to state a material fact necessary to make the statements made, in the light of the circumstances under which they were made, not misleading to any investor or prospective investor, or to otherwise engage in any fraudulent, deceptive, or manipulative act with respect to any investor or prospective investor; (3) Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder, which require registered investment advisers to adopt and implement written compliance policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder; and (4) Section 34(b) of the Investment Company Act of 1940, which makes it unlawful for any person to make any untrue statement of a material fact in any registration statement and other documents filed or transmitted pursuant to the Investment Company Act, or to omit to state therein any fact necessary in order to prevent the statements made therein, in the light of the circumstances under which they were made, from being materially misleading.

Without admitting or denying the allegations, the adviser agreed to cease and desist from future violations, to be censured, to pay a civil monetary penalty of $300,000 and to retain an independent compliance consultant. In agreeing to the settlement, the SEC considered the remedial acts promptly undertaken by the adviser and its cooperation with the SEC staff.

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