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Northern Lights Fund Trustees Settle SEC Charges

The Northern Lights fund trustees have settled SEC charges regarding materially untrue or misleading shareholder report disclosure and failing to follow compliance policies and procedures.  The order found the following:

  • The funds’ shareholder reports contained boilerplate disclosures about the advisory contract approval process that were materially untrue or misleading in violation of the 1940 Act.  The trustees were charged with causing this violation because the disclosures were based on board minutes that were reviewed and approved by the trustees.  

  • The trustees failed to follow their own procedures for approving service provider’s compliance procedures.   The trustee approved Compliance Manual stated that the board would review either the full compliance manuals, policies, procedures and practices of each fund service provider, or, review detailed summaries of the service providers’ programs that would “familiarize directors with the salient features” of the compliance programs and “provide them with a good understanding of how the [programs] address particularly significant compliance risks.”   In reviewing the advisers’ compliance programs, however, the trustees relied on brief statements prepared by the CCO stating that the compliance manuals were “sufficient and in use” and also indicating that the code of ethics and proxy voting policies were “compliant.”  The SEC found that these statements were not sufficient to meet the requirements of the trustees’ own compliance procedures.

The administrator and CCO (a limited liability company in the business of providing compliance services for funds) were also charged with related violations.  Without admitting or denying the SEC's findings, the administrator and CCO each agreed to pay $50,000 penalties, and the firms and trustees agreed to engage an independent compliance consultant to address the violations found in the SEC's order. They agreed to cease and desist from committing or causing any violations and any future violations of those provisions.