Sound Point Capital Management agreed to pay $1.8 million to settle SEC charges that it failed to establish and maintain written policies and procedures for handling material nonpublic information in its trades of collateralized loan obligations.
The alternative asset manager — which was founded by Stephen Ketchum and principals of Stone Point Capital, with minority investments from Blue Owl GP Strategic Capital and Assured Guaranty — had more than $45 billion in assets under management as of March 31, according to its website. Previous investors in Sound Point Capital funds include the $43.8 billion Texas County & District Retirement System, Austin, and $3.5 billion Ford Motor Co. Trust Fund Hedge Funds, a corporate pension fund based in Dearborn, Mich.
From May 2018 to June 2024, Sound Point Capital managed CLOs and traded its own CLOs as well as CLOs managed by third parties, according to the SEC’s Aug. 26 order.
As a result, the asset manager held material nonpublic information, or MNPI, about companies whose loans were held in the CLOs Sound Point Capital traded, the SEC said.
“Although Sound Point began conducting pre-clearance reviews in July 2019 to assess the potential impact of MNPI about underlying loans on the trading of Sound Point CLOs, Sound Point did not adopt written policies and procedures for such reviews until July 2022,” the SEC order stated, finding that the firm violated the Investment Advisers Act of 1940.
That law requires that investment advisers establish, maintain and enforce written policies and procedures to prevent the misuse of material nonpublic information.
The SEC also found that during the same time period of 2018 to 2024, “Sound Point failed to establish, maintain, or enforce any written policies or procedures concerning its possession of MNPI about underlying loans held by a Third Party CLO,” according to the order.
As a result of the SEC’s investigation, in April, the firm began conducting pre-clearance reviews for preventing the misuse of MNPI about loans held by third-party CLOs, and in June, it adopted written policies and procedures for those reviews, the regulator said.
“Fund managers — including those with multiple business lines or strategies — must consider how they may come into possession of material nonpublic information and then adopt and implement reasonable policies and procedures around those risks,” said Andrew Dean, co-chief of the SEC enforcement division’s asset management unit, in an Aug. 26 news release. “Among other things, advisers must evaluate how their roles as lenders could expose them to MNPI that may relate to their CLO trading positions.”
Without admitting or denying the findings, Sound Point Capital agreed to pay a civil money penalty of $1.8 million, the order said
"We cooperated with the SEC in this matter, which relates to certain compliance policies and procedures, the majority of which were modified in 2019," a Sound Point Capital spokesperson said in a statement. "We have enhanced our controls since then. This matter does not include any findings of insider trading or misuse of material nonpublic information by Sound Point or its employees."
The spokesperson added that the firm "takes its fiduciary responsibilities very seriously and remains committed to operating with the highest standards of governance and compliance."
In 2023, Sound Point Capital helped refinance the revolving credit line for Steward Health Care, according to an article from WSJ Pro Bankruptcy. Steward was the target of legislation introduced in June, authored by Massachusetts Democratic Sens. Elizabeth Warren and Ed Markey, that would create a new criminal penalty for private equity executives who “loot” healthcare facilities like nursing homes and hospitals. The senators said that private equity “greed and mismanagement” drove Steward, which operates eight hospitals in Massachusetts, into bankruptcy.
