Sound Point Capital Management has agreed to pay $1.8m to settle SEC charges that it failed to establish, maintain and enforce written policies and procedures for handling material nonpublic information in its trades of collateralised loan obligations.
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.
Andrew Dean, Co-Chief of the Enforcement Division’s Asset Management Unit, commented: “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.
“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 $1.8m penalty, Sound Point agreed to a cease-and-desist order and censure.
In a statement, a Sound Point spokesperson said: “We cooperated with the SEC in this matter, which relates to certain compliance policies and procedures, the majority of which were modified in 2019. We have enhanced our controls since then. This matter does not include any findings of insider trading or misuse of material nonpublic information by Sound Point or its employees.”
