An opinion this week from the Southern District of New York, SEC v. Alderson [click here], held that an RIA’s communications with lawyers associated with its third-party compliance consultant were not protected by the attorney-client privilege or the attorney work-product doctrine. As a result, the district court compelled disclosure of over 230 communications passing between the RIA’s in-house counsel and its third-party compliance firm (staffed with licensed attorneys) before and during the course of an examination of the RIA by the Securities and Exchange Commission (“SEC”). This ruling raises important considerations for an RIA or broker-dealer when engaging outside compliance consultants and lawyers, especially if the firm intends for certain of or all of those communications to be cloaked with privilege.
In Alderson, the SEC accused two IARs of violating § 206 of the Investment Advisors Act by misrepresenting the tax consequences, failing to disclose a conflict of interest about compensation, and other acts or omissions, concerning the transfer of U.K. pension assets to overseas retirement plans that qualified under the U.K. tax authority’s regulations as a Qualified Recognized Overseas Pension Scheme (“QROPS”). The two IARs had previously worked for the RIA and invested clients into the RIA’s QROPS program, but were no longer affiliated with RIA at the time of the lawsuit filing.