Section 204A of the Investment Advisers Act of 1940 requires advisers to adopt and implement written policies and procedures reasonably designed to prevent misuse of material nonpublic information (MNPI). The SEC’s recent settlement with a hedge fund adviser “demonstrates the SEC’s focus on the risk of MNPI misuse in the fast-growing private credit market,” Elizabeth L. Mitchell, partner at WilmerHale, told the Hedge Fund Law Report. The adviser, which also manages and trades collateralized loan obligations (CLOs) and pursues other credit strategies, sold certain CLO tranches while in possession of MNPI concerning one of the companies whose debt was held by the CLO. A day after the sale, that information became public, leading to a drop in value of the CLO – and a threat of legal action from one of the adviser’s counterparties. Although the adviser had general insider trading policies, those policies did not require it to consider whether MNPI about a borrower whose debt was held by a CLO was material to a sale of a tranche of such CLO, the SEC claimed. This article discusses the adviser’s alleged compliance failures and the terms of the settlement, with additional commentary from Mitchell. See “Risk Alert Cites Compliance Issues Regarding Advisers’ Handling of MNPI” (May 19, 2022).