Publications

Seventh Circuit Partially Reverses SEC Ruling on Allocations

Winter 2005
Investment Management Developments - Winter 2005

The United States Court of Appeals for the Seventh Circuit recently affirmed in part and reversed in part a Securities and Exchange Commission ("SEC") ruling against an investment adviser and its president under the Investment Advisers Act of 1940 (the "Advisers Act"). The SEC previously ruled that Monetta Financial Services, Inc. ("MFS"), a registered investment adviser, violated Section 206(2) of the Advisers Act, the general anti-fraud provision, by failing to disclose to the disinterested directors of a registered investment company for which it serves as investment adviser, that it allocated Initial Public Offering ("IPO") shares to the affiliated directors of the mutual fund and that its president, Robert Bacarella, aided and abetted the violation. The Seventh Circuit upheld the ruling that MFS violated Section 206(2), but found that there was insufficient evidence to support a finding that Bacarella aided and abetted the violation and that the sanctions imposed on MFS by the SEC were excessive.