Securities Regulation Daily Wrap Up, INVESTMENT COMPANIES—Fund agrees to settled administrative order mandating payment of $400K, (Jul 28, 2026)
Organizations Mentioned:Simplify Asset Management, Inc.
The SEC’s order detailed multiple allegedly conflicted transactions that violated several provisions within the Investment Company Act.
Simplify Asset Management, Inc. agreed to settle the SEC’s charges that the firm violated multiple provisions within the Investment Company Act (ICA) and related rules regarding conflicted transactions and the lack of written policies and procedures to prevent such lapses regarding a series of exchanged-traded funds (ETFs). Simplify consented to pay a civil money penalty of $400,000 to resolve the administrative matter without admitting the SEC’s findings other than those findings related to the agency’s jurisdiction over the matter (In the Matter of Simplify Asset Management, Inc., Release No. IC-36269 (July 27, 2026)).
According to the SEC’s order (summary), Simplify allegedly engaged in multiple violations of the ICA between July 2021 and November 2024 regarding multiple ETFs that involved conflicted transactions. For example, the order described a trust that allegedly engaged in prohibited transactions with an ICA-regsitered ETF client. A second alleged violation involved an ETF client’s failure to meet the requirements of an exemptive rule that would otherwise permit the ETF to engage in derivative transactions. Additional alleged violations involved ETF clients that failed to provide notices to fund investors about returns of capital and related violations regarding lack of adequate policies and procedures.
Specifically, the SEC noted that ICA Section 17(a)(1) provides that it is unlawful for any affiliated person or promoter of or principal underwriter for a registered investment company to knowingly sell any security or other property to such registered company or to any company controlled by such registered company, unless such sale involves certain types of securities specified by the statute. According to the SEC, Simplify, as investment adviser to Simplify Propel Opportunities ETF (SURI), was an affiliated person of SURI prior to and at the time of certain in-kind subscriptions by Trust A, which the SEC said holds the largest equity position in Simplify.
The SEC also said that, under ICA Section 18(f)(1), Simplify was required to comply with the rule that it is unlawful for any registered open-end company to issue any class of senior security or to sell any senior security of which it is the issuer, except that a registered company can borrow from any bank. After any such borrowing there is an asset coverage requirement that must be maintained in the statutorily specified percentage with the additional requirement that borrowings will be adjusted downward, if needed, to meet the asset coverage requirement.
Here, the SEC’s order explained that Simplify failed to meet ICA Rule 18f-4’s requirements for issuing leverage threshold breach notices because it only notified the board of the breaches months after the fact. The SEC said Simplify also caused FIG (a series ETF in the Simplify Trust that was advised by Simplify) to fail to file with the Commission disclosures of the leverage breaches.
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The SEC said that ICA Section 19(a) makes it unlawful for any registered investment company to pay any dividend, or to make any distribution in the nature of a dividend payment, wholly or partly from any source other than from those specified in the statutes unless a proper disclosure has been made about the source of the funds. Simplify, according to the SEC’s order, caused seven ETFs it advised, including SURI, to fail to provide contemporaneous notices to fund investors that a portion of the dividends the Simplify ETFs distributed to them was a return of fund capital rather than income.
Lastly, the SEC alleged that Simplify and several ETFs lacked written policies and procedures that are reasonably designed to prevent violations of federal securities laws. This failure, said the SEC, violated ICA Rule 38a-1.
In reaching the settlement, Simplify agreed to a cease-and-desist order and to pay a $400,000 civil money penalty. The SEC indicated that in fixing the terms of the settlement, the agency had considered Simplify’ s remedial actions and other cooperation afforded to SEC staff.
The release is No. IC-36269.
Companies: Simplify Asset Management, Inc.
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