The SEC sanctioned an investment adviser for paying sports agents and other influencers to direct, without required disclosure or consent, prospective professional basketball players to retain the adviser’s services.  The SEC asserts that the adviser and its principal paid more than $96,000 to agents, coaches and other influencers to convince NCAA athletes to retain the adviser once they became professionals.  Although an adviser can pay solicitors, these payments did not comply with the solicitation rule (206(4)-3), which requires specific disclosure of payments made to the solicitor and signed client consent.  The principal was also criminally prosecuted for bribery and wire fraud.

The newly adopted advertising rule eliminates the solicitation rule but retains the requirement to fully disclose any compensation paid to solicitors.  To clarify, it is a breach of fiduciary duty for an adviser to pay a third party solicitor without fully disclosing the identity of the solicitor and the amount paid.