A fund manager’s policies and procedures should provide for remedial steps if red flags reveal violations or misconduct, as well as the consequences for the employees involved, such as warnings, retraining, disgorgement of any profits or termination. If a manager becomes aware of red flags and does nothing, the misconduct will continue – and the manager may find itself subject to an enforcement action. For example, the SEC issued settlement orders against an investment adviser and its chief financial officer (CFO) in connection with alleged insider trading and fraudulent valuation practices by several of the adviser’s former portfolio managers. The SEC charged that, by virtue of the portfolio managers’ misconduct, the adviser violated the antifraud and compliance provisions of the federal securities laws. In addition, the CFO allegedly failed to supervise the portfolio managers, including by missing or ignoring three red flags regarding the valuation of the fund’s assets. This article analyzes the terms of the settlements. For more on the importance of responding to red flags, see “How to Avoid Five Common Duty to Supervise Traps: Respond to Red Flags; Implement Reasonable Policies and Procedures; and Conduct Adequate Training (Part Three of Three)” (Sep. 20, 2018).