Back to the future, part II: How the SEC is targeting fraud across investment managers and private funds

Key takeaways

• The U.S. Securities and Exchange Commission (SEC) brought fewer enforcement actions in FY2025 than in any other year in at least two decades, but this is not a reprieve for private fund managers
• The Commission has narrowed its focus to fraud, fiduciary breaches, and misrepresentation, and it’s increasingly naming the individuals behind them rather than settling with the firm
• Compliance risk has shifted from departments to individuals, and investment managers should not get complacent

Last October, I wrote that the SEC looked set to rediscover an old engineering principle: keep it simple. The “back to basics” posture the Commission signaled going into 2026 has now arrived in full, and the fiscal year 2025 (FY2025) results provide the first hard evidence of practical implications for investment advisers.

Here’s the short version of this year’s reality: the era of the compliance sweep is fading, and the era of the named defendant is here. If Part I was about the SEC’s underlying philosophy, Part II is about its consequences for fund managers.

How the SEC changed in 2025

Under Chairman Paul Atkins (sworn in on April 21, 2025), the Division of Enforcement stepped back from what its critics called “regulation by enforcement” and returned to a narrower mandate: prosecuting lying, cheating and stealing that causes real investor harm. The numbers underline that objective. In an April 2026 press release, the SEC reported 456 enforcement actions for FY2025, alongside $17.9 billion in monetary relief. That total is the lowest in at least 20 years.

Part of that decline is a simple matter of capacity. In a May 2025 Town Hall, Atkins noted the SEC’s headcount had fallen roughly 15% to about 4,200 employees, down from roughly 5,000 a year earlier. A leaner agency has to choose its battles, and it has chosen them deliberately.

“We must go after cases of genuine harm and bad acts, but we must view cases of benign or innocent actions differently.” —SEC Chairman Paul Atkins

The most visible casualty of that choice is the technical case. The type of actions the current Commission has loudly criticized, such as off-channel communications and crypto registration cases, are largely absent from recent filings.

But funds shouldn’t make the mistake of interpreting “fewer cases” as “lower risk.” As recent cases show, the SEC is simply concentrating its focus—and the corresponding risk—elsewhere.

SEC enforcement priorities: four fraud theories

For fund managers, four fraud theories now carry the weight of the SEC’s enforcement program. Each one sits squarely inside the Commission’s traditional jurisdiction, which means none of them are likely to fade away with the political weather.

1. Offering fraud and Ponzi-like schemes

Offering fraud is the SEC’s oldest and most durable enforcement theory: raising investor capital on the strength of material misstatements, or misappropriating and commingling investor funds once raised. Ponzi-like structures, where distributions to existing investors are funded by new investor money rather than real returns, sit at the extreme end of this category.

This type of activity is the core of the SEC’s mandate, and is prosecuted regardless of who chairs the Commission. In one recent action reflecting the “back to basics” posture, the SEC charged an investment adviser with making false statements to raise more than $169 million. For legitimate managers, the lesson is that the capital-raising narrative in your pitch materials will be measured against what ultimately happens to the money.

2. Insider trading

Insider trading, or trading on material non-public information (MNPI), remains an SEC priority and continues to generate a steady stream of cases against investment professionals. For private fund managers, exposure comes through the ordinary channels of the job: expert networks, co-investor relationships, and direct access to portfolio-company management.

That exposure is rising in practical terms because the SEC increasingly uses data analytics to flag anomalous trading ahead of market-moving announcements, surfacing patterns that once went unnoticed. The incoming enforcement leadership reinforces the point; Director David Woodcock is expected to prioritize traditional core areas including insider trading, accounting fraud, and market manipulation.

3. Fiduciary duty breaches and conflicts of interest

A fiduciary breach occurs when an adviser puts their own economic interest ahead of the clients or funds they are bound to serve, and this was the most active area of adviser enforcement in FY2025.

In practice, it shows up in the mechanics: management-fee credits and offsets calculated in ways that subtly favor the adviser, expenses allocated to the fund that should have sat with the manager, or investors steered toward fee-generating products without clear disclosure of the incentive behind the recommendation. This is the category most likely to catch an otherwise honest firm, because the violation lives in a spreadsheet, not in intent.

The SEC’s throughline across these cases is consistent: it will prosecute advisers who exploit the informational asymmetry at the heart of a fiduciary relationship, particularly when the firm profits from a decision made on a client’s behalf.

4. Form ADV and marketing rule misrepresentations

Form ADV misrepresentation covers inaccurate or unsubstantiated claims about a firm’s strategy, assets under management, client base, ownership, or conflicts. Marketing rule violations cover misleading performance figures, undisclosed endorsements, and claims a firm can’t support on demand. The Commission signaled how seriously it takes this in November 2025, when it charged six investment advisers over material misrepresentations in their Form ADV filings regarding their organizations, office locations, assets, and clients. Every claim in your filings and marketing should be independently verifiable today, not reconstructible under examination later.

Another big change: Individual accountability

Perhaps the biggest takeaway from the SEC’s FY2025 enforcement data is this: The current Commission views individual accountability as a more effective deterrent than entity-level penalties alone.

• Roughly two-thirds of standalone actions in FY2025 named at least one individual, a 27% year-over-year increase
• Under Acting Chairman Uyeda and Chairman Atkins, nearly nine out of every ten standalone actions included individual charges
• The Commission even obtained orders barring 119 individuals from serving as officers or directors of public companies

For a firm’s principals, CFO, general counsel and chief compliance officer, the entire risk calculus has changed. When the SEC goes looking for someone to penalize for wrongdoing, it’s now looking at people rather than policy.

What this means for your firm

The SEC’s new focus areas aren’t just looking for managers running obvious scams. They’re also narrowing in on the managers who let the mechanics drift by calculating fee credits the convenient way, or maintaining an outdated Form ADV, or sharing performance figures that can’t be substantiated on demand. None of this is intentional fraud, but it still means enforcement risk.

Four compliance priorities for U.S. fund managers in 2026:

1. Audit your fee and expense allocation math. Management-fee credits, offsets, and expense splits are the single most active adviser-enforcement area, and the easiest place for a well-run firm to get caught up by a spreadsheet
2. Reconcile your Form ADV to reality. The six-adviser sweep signals active scrutiny of filings. Every claim (strategy, AUM, client base, conflicts) should be independently verifiable in real time
3. Substantiate everything in your marketing. Scrutinize performance data, hypotheticals, endorsements, and third-party ratings. If you can’t support a claim on demand, it’s a liability rather than an asset
4. Make compliance provable. With individual accountability as the new normal, simply having a policy isn’t enough. The SEC is looking for verifiable evidence that you followed the policy

How IQ-EQ can help

Taken together, the SEC’s return to basics signals a relocation of risk rather than a reduction, moving away from technical checklists and toward the fundamentals of transparency and faithful fiduciary conduct, with responsible individuals increasingly in the frame.

Unlike a traditional consultancy, IQ-EQ’s U.S. Regulatory Compliance team takes ownership of your compliance program and functions as your compliance staff, handling the full scope of SEC, NFA/CFTC, state, ’40 Act, and FINRA requirements. That includes outsourced CCO services, quarterly review and testing of your compliance program, and mock examinations and gap analyses to pressure-test the same areas the Commission is prioritizing.

Our clients worldwide trust this model: IQ-EQ supports 13 of the top 15 private equity firms, backed by a global team of 300+ compliance experts.

Contact our team today to learn more

About the author

Sean Wilke is IQ-EQ’s Head of Growth Strategy, Americas and has extensive experience supporting various types of buy-side investment managers (including hedge funds, venture capital funds, private equity/credit funds, wealth managers, registered investment companies, institutional allocators and family offices) on regulatory, compliance, operational and management matters. Before joining IQ-EQ in 2018, Sean was a managing director within the Governance, Risk, Investigations and Disputes group at Duff & Phelps (now Kroll), where he focused on compliance and regulatory consulting for the alternative investment space.

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