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The U.S. Securities and Exchange Commission (SEC) announced Monday that Marathon Asset Management LP has agreed to pay a $1.5 million fine to settle allegations that it failed to implement adequate policies to prevent the misuse of nonpublic information. The settlement addresses concerns related to Marathon’s involvement with distressed corporate debt and creditor committees.

SEC Fines Marathon Asset : SEC Allegations

According to the SEC’s cease-and-desist order, Marathon, which managed over $25 billion in assets as of June, invests heavily in distressed corporate bonds and often joins creditor committees formed to restructure the debts of financially struggling companies. Such committees have access to material nonpublic information (MNPI), which the SEC said Marathon did not adequately safeguard against potential misuse.

The SEC’s order highlights that Marathon lacked effective policies for managing risks associated with receiving MNPI during interactions with financial advisers and consultants. Specifically, the SEC noted that Marathon failed to ensure due diligence on advisers' policies or obtain representations from them regarding MNPI handling. The firm also did not sufficiently monitor its involvement in creditors’ committees to prevent the inadvertent misuse of nonpublic information.

Case Example: COVID-19 Financial Distress

The SEC order cited a July 2020 example when Marathon analysts identified that a company facing financial distress due to the COVID-19 pandemic might struggle to meet its debt obligations, including bonds owned by Marathon. Marathon, along with other creditors, formed a committee to assist with the company's debt restructuring. During this process, an advisory firm provided the committee with information under a nondisclosure agreement. However, Marathon did not adequately address or monitor the risk of receiving or misusing MNPI during its participation.

While the SEC did not allege any illegal trading, it noted that Marathon analysts communicated with a trader at the firm regarding the company’s trading strategy, which was then executed. This raised concerns about Marathon’s compliance with regulations governing the handling of nonpublic information.

SEC’s Response and Marathon’s Settlement

Osman Nawaz, chief of the SEC’s Complex Financial Instruments Unit, emphasized the importance of investment firms having robust policies when engaging with financially distressed companies. He stated, "Investment advisers...must take into consideration those circumstances when designing their material nonpublic information policies and procedures."