The recent SEC action against Marathon Asset Management serves as a stark reminder for registered investment advisers (RIAs) to prioritize compliance when participating in ad hoc creditors’ committees or other informal relationships. The SEC’s emphasis on the risk of RIAs receiving material nonpublic information (MNPI) through these committees underscores the need for robust compliance measures.

THE CORE ISSUE

The crux of the SEC’s concern lies in the potential for RIAs to gain access to MNPI while serving on ad hoc creditors’ committees. This information could provide an unfair advantage in trading securities of the distressed company or related entities.

To address this risk, RIAs must implement comprehensive insider trading policies that cover a wide range of activities. These include the following.

Participation in ad hoc creditors’ committees: Clear guidelines for information sharing and confidentiality; strict restrictions