Regulatory Forum

The SEC charged Justin Jennings and Vortex Strategies LLC with insider trading based on material nonpublic information Jennings allegedly misappropriated from his romantic partner, who worked at a strategic communications and investor relations firm. The SEC alleged Jennings accessed information from her work-issued laptop about M&A, earnings, and other corporate events involving public-company clients and traded in eight public companies, generating approximately $2.7 million in illicit profits; parallel criminal charges were also announced.

The SEC charged Giovanni Pennetta, who managed a private fund through his exempt reporting adviser, Sestante Capital LLC for false representations about his access to shares of private company, Anduril Industries, Inc., to investors who invested over $10.5 million in the private fund NextGenTech Investments LLC (“NextGenTech”). Instead of using the investor funds to purchase Anduril stock, Pennetta allegedly misappropriated over $6.2 million for his personal use and to repay an investor in a separate NextGenTech offering. Pennetta consented to an SEC injunctive order with disgorgement and penalties to be determined at a later date. In a parallel criminal action concerning the same conduct, on March 5, 2026, Pennetta pleaded guilty to one count of wire fraud. Pre-IPO and similar private fund strategies involving single purpose vehicles created to invest in private companies, often technology-related, that are expected to eventually go public are increasingly common. There have been several SEC enforcement actions in recent years involving such vehicles, fraudulent misrepresentations, and misappropriate, which raises SEC scrutiny of such strategies, of which fund managers should be aware.

On June 9, 2026, the SEC’s Division of Examinations issued a Risk Alert highlighting that investment advisers must fully and fairly disclose all economic conflicts of interest, particularly those arising from compensation, revenue sharing, and product recommendations. The alert highlighted how examinations continue to reveal deficiencies in these areas, including undisclosed or misleading disclosures about revenue arrangements, inconsistent fee billing practices, and compliance programs that failed to address all types of billing arrangements or monitor fee accuracy. 

CCOs should ensure that disclosures are clear, complete, and consistent across all documents and ensure that compliance programs are robust enough to identify, monitor, and address economic conflicts and fee-related issues. Regular reviews and updates to policies, procedures, and client communications are essential to meet fiduciary obligations and regulatory expectations. 

While the deficiencies addressed in this risk alert are most relevant for wealth managers, private fund managers should focus on cash management and treasury arrangements and other types of compensation that are applicable to their business for potential conflicts of interest.

The SEC charged RIA, Foundations Investment Advisors, LLC, and former CEO Bryon E. Rice for alleged breaches of fiduciary duty arising from undisclosed conflicts related to personal holdings and economic incentives connected to investment products and affiliated relationships. The undisclosed conflicts included: (1) Rice having an economic interest in a sub-adviser that provided an investment model portfolio to Foundations’ clients, a portfolio that included an exchange-traded fund (“ETF”) that another adviser managed; (2) Foundations having an expense sharing agreement with another adviser related to four other ETFs that gave Foundations an incentive to recommend these products to clients; and (3) affiliations among Foundations’ former chief investment officer (the “CIO”), the adviser, and an entity that acted as a sub-adviser to Foundations and for the ETF. Rice failed to pre-clear his trades, including the ETF in question, as required under the firm's Code of Ethics. The SEC noted that the firm failed to identify the CIO as an access person who was subject to the Code of Ethics. In addition, the SEC noted other failures involving compliance-program implementation and failure to conduct an annual compliance review for calendar year 2021. The adviser who manages more than $10 billion in RAUM, agreed to pay approximately $152,628 in disgorgement, $15,031 in prejudgment interest, and a $1.2 million civil penalty. The case highlights the importance of ensuring compliance with all requirements under advisers' compliance manuals, and enforcing pre-approval requirements under the Code of Ethics, as critical controls in preventing and detecting undisclosed conflicts.