Overview of the SEC Enforcement Action
The Securities and Exchange Commission (SEC) announced an enforcement action against Credit Suisse Securities (USA) LLC and its affiliates, collectively referred to as the Credit Suisse Entities. This action, resulting in a settlement exceeding $10 million, stems from the entities’ engagement in prohibited underwriting and advising services for mutual funds. This development marks a notable instance of regulatory oversight in the financial industry, particularly concerning adherence to the Investment Company Act of 1940.
Background of Legal Proceedings
The genesis of this regulatory scrutiny can be traced back to October 2022, when the Superior Court of New Jersey entered a consent order addressing allegations against Credit Suisse Securities. The allegations pertained to violations of the antifraud provisions of New Jersey Securities laws, specifically in the context of the entity’s role as an underwriter for residential mortgage-backed securities. This legal development had far-reaching implications, culminating in a prohibition against these entities from serving as principal underwriters or investment advisers to mutual funds and employees’ securities companies.
Non-Compliance and SEC’s Findings
The SEC’s order highlights a critical non-compliance issue. Despite the New Jersey court’s directive, which effectively barred Credit Suisse Securities and its affiliates from certain roles within the mutual funds sector, these entities continued to operate in these prohibited capacities. This continuation persisted until the SEC granted them time-limited exemptions in June 2023. Interestingly, this situation unfolded just days before Credit Suisse was acquired by UBS Group AG.
Significance of the Enforcement
Corey Schuster, Asset Management Unit Co-Chief at the SEC, emphasized the accountability aspect of this action. The enforcement serves as a stark reminder of the imperative for entities in the financial sector to monitor for events that may lead to disqualification diligently. Moreover, it underscores the necessity for these entities to proactively seek waivers from the Commission or abstain from engaging in prohibited services if disqualification is imminent.
Financial Implications and Settlement
In settling the SEC’s charges, the Credit Suisse Entities neither admitted nor denied the findings. However, they agreed to a financial settlement involving over $6.7 million in disgorgement and prejudgment interest, accompanied by civil penalties of $3.3 million. This settlement is not just a financial penalty but also a significant signal to the financial industry about the importance of regulatory compliance and the consequences of non-adherence to legal and ethical standards.
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