SEC Reminds Investment Companies: Timely Investor Communications Are Still Important

The staff of the Division of Investment Management (the “Division”) of the Securities and Exchange Commission (SEC) issued a statement on April 14, 2020, reminding investment companies of their regulatory obligations to provide investors with timely and relevant information about the funds in which they invest, while also offering the SEC’s continued support during the COVID-19 pandemic.

The statement recognizes the challenges that investment companies and other market participants have faced as a result of the operational and market impacts of the pandemic and noted that the SEC has responded by issuing targeted conditional and temporary relief and providing guidance. However, while the Division expressed that it remains receptive to input from investment companies and other market participants during this turbulent time, it also reiterated its firm commitment to making timely and relevant information available to new and existing investors.

Accordingly, investment companies are expected, regardless of the current market environment, to: (i) update prospectuses and financial statements, as required under the securities laws and (ii) deliver such updates in a timely manner. The staff acknowledged that the timely delivery of paper prospectuses may be challenging in the current environment, but emphasized that relief was only available to investment companies delivering prospectuses to existing investors as follows:

New Investors. Investment companies must provide timely delivery of the current prospectus using the preferred delivery method of the investor.

Existing Investors. Subject to certain conditions, relief is available to investment companies that are unable to provide timely delivery of a paper copy of the current prospectus, allowing for a delay of up to 45 days.

Consequently, the Division encouraged investment companies to engage investors about their delivery preferences noting that, given the current stay-at-home circumstances, many may prefer electronic delivery.

In conclusion, investment companies should consider whether current disclosure, including risk disclosures, adequately address the impact of COVID-19 on a fund and its investments and maintain proactive communication with the staff of the Division. In particular, investment companies should engage the staff if additional challenges arise, including those that could affect an investment company’s ability to meet any filing or other regulatory requirements.

As the number of cases around the world grows, Faegre Drinker’s Coronavirus Resource Center is available to help you understand and assess the legal, regulatory and commercial implications of COVID-19.