The Securities and Exchange Commission today announced settled charges against New York-based registered investment adviser Sound Point Capital Management LP for failing to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse of material nonpublic information (MNPI) concerning its trading of collateralized loan obligations (CLOs). To settle the SEC’s charges, Sound Point agreed to pay a $1.8 million civil penalty.
According to the SEC’s order, as a significant component of its business, Sound Point managed CLOs and traded its own CLOs as well as CLOs managed by third parties. Sound Point also had a credit business for which it often participated in lender groups or creditors’ committees. As a result of this business, on occasion, Sound Point came into possession of MNPI about companies whose loans were held in the CLOs that Sound Point traded. After an incident in July 2019, Sound Point began conducting pre-trade compliance reviews of the potential impact of MNPI about loans in Sound Point-managed CLOs, though it did not adopt a written policy for these reviews until July 2022. Sound Point did not establish, maintain, or enforce any written policies or procedures concerning the potential impact of MNPI about the loans in third party-managed CLOs until June 2024.
“Fund managers – including those with multiple business lines or strategies – must consider how they may come into possession of material nonpublic information and then adopt and implement reasonable policies and procedures around those risks,” said Andrew Dean, Co-Chief of the Enforcement Division’s Asset Management Unit. “Among other things, advisers must evaluate how their roles as lenders could expose them to MNPI that may relate to their CLO trading positions.”
The SEC’s order finds that Sound Point violated Sections 204A and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder. In addition to the $1.8 million penalty, Sound Point agreed to a cease-and-desist order and censure.
The SEC’s investigation was conducted by Craig Welter, Heather L. Shaffer, and Brian Fitzpatrick under the supervision of Lee A. Greenwood, Mr. Dean, and Corey Schuster, all of the Division of Enforcement’s Asset Management Unit. Matthew Christiansen, Stephen Latin, and Jennifer Duggins of the Division of Examinations’ Private Funds Unit and Andrew Green of the Philadelphia Regional Office assisted with the investigation.
