SEC Charges Pinnacle Advisors LLC and Trustees for Liquidity Rule Violations

The Securities and Exchange Commission (SEC), on May 5, 2023 charged Pinnacle Advisors LLC and other individuals with aiding and abetment of violations by a mutual funds to the Liquidity Rule. The SEC also accused the fund’s trustees who were independent of Pinnacle Advisors as well as the fund officers for their involvement.

This is the first time the Liquidity Rule has been enforced. It prohibits mutual fund managers from investing more than 15% of their net assets (net assets) in illiquid securities. The rule also requires that funds take immediate remedial action if this limit is exceeded and have a liquid risk management program.

According to SEC’s complaint the fund held between 21 and 26 per cent of its net assets as illiquid investments in June 2019 to July 2020. Pinnacle Advisors’ officers and Pinnacle Advisors classified the fund’s largest illiquid asset as “less liquid” Despite restrictions and the lack of a marketplace for the shares. They were accused of ignoring fund counsel, auditors, and failing to make the required SEC filings or present a plan aimed at reducing illiquid investments.

The complaint further states that, despite being aware of their restricted and illiquid shares, the independent trustees failed to provide reasonable oversight for the fund program. The SEC asserts that the individuals accused aided in and abetted violations of the Investment Company Act by the fund.

The SEC has filed a complaint seeking permanent injunctions as well as civil money penalties. The fund which is now called a liquidating trustee is not charged separately. The Retail Strategy Task Force and Division of Examinations of the SEC conducted the investigation with the assistance of the Enforcement Division’s Office of Investigative and Market Analytics. The SEC enforcement team will handle the litigation.

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SEC: What You Need to Know

Securities and Exchange Commission, or SEC for short, is an American regulatory agency that has the primary responsibility of protecting investors and maintaining fair and effective markets. This is achieved by the SEC through various actions and measures.

First, the SEC mandates that companies provide investors with accurate and timely financial information by requiring the disclosure of such information. This allows investors to access reliable data in order to make informed investments.

Second, it enforces securities law to prevent fraudulent activity and market manipulation. The SEC investigates insider trading, Ponzi Schemes, accounting fraud and other illegal practices and takes legal actions against those involved. The SEC’s goal is to protect investors and maintain the integrity of the market by enforcing these laws.

In addition, the SEC regulates all securities markets, including stock brokers and exchanges, in order to ensure fair trading. It monitors market participants’ compliance with rules and standards to prevent unfair trade practices, such as price manipulation or front-running.

The SEC is also working to improve investor protection through the supervision of investment advisors and funds. The SEC requires that these entities register with it and adhere to rules and regulations. This includes fiduciary responsibilities towards clients. This oversight protects investors’ interests and helps prevent conflicts of interest.

SEC’s role is to protect investors in general by promoting investor protection, enforcing securities law, regulating the market participants and enhancing awareness of and education for investors. Its efforts are aimed at fostering trust and confidence within the financial markets. Individual and institutional investors will benefit from this.

More information can be found at

SEC’s Website

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