by Matthew E. Kaplan, Jonathan R. Tuttle, Benjamin R. Pedersen, and Anna Moody
Introduction
On August 26, 2024, the Securities and Exchange Commission (“SEC”) announced settled charges against registered investment adviser Sound Point Capital Management, LP (“Sound Point”) for violating Sections 204A and 206(4) of the Investment Advisers Act of 1940 (“Advisers Act”) and Rule 206(4)-7 thereunder. According to the order, Sound Point failed to establish, maintain or enforce written policies and procedures reasonably designed to prevent the misuse of material non-public information (“MNPI”) concerning its trading of collateralized loan obligations (“CLOs”) that contained loans for which Sound Point was a lender.[1] Andrew Dean, Co-Chief of the SEC Enforcement Division’s Asset Management Unit, issued a statement on the same day reminding fund managers that they “must evaluate how their roles as lenders could expose them to MNPI that may relate to their CLO trading positions.”[2] These issues could also arise in contexts where the firm otherwise has access to MNPI.