The 15(c) Process Continues to Be a Focus of the SEC Enforcement Staff

August 13, 2015

Two recent SEC Enforcement Division administrative settlements reinforce the importance for fund boards of directors and fund advisers to maintain a robust annual advisory contract renewal process.

In both In the Matter of Commonwealth Capital Management, et al., SEC Rel. No. IC-31678 (June 17, 2015) (Commonwealth) and In the Matter of Kornitzer Capital Management, et al., SEC Rel. No IC-31560 (Apr. 21, 2015) (Kornitzer) (collectively, Orders), the Securities and Exchange Commission’s (SEC or Commission) Enforcement Division staff (Staff or Enforcement Division) alleged deficiencies in the process that certain mutual funds used to renew the annual advisory contract with their investment advisers, as required by Section 15(c) of the Investment Company Act of 1940 (1940 Act). The Orders serve as the most recent examples of the Enforcement Division’s pursuit of penalties when it observes deficiencies in the annual advisory contract approval process (15(c) Process). In addition, Commonwealth highlights a growing trend of the Enforcement Division to name personally individual board members of registered investment companies, even where the underlying conduct does not warrant the imposition of a significant penalty.

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