With appropriate disclosures and controls, an investment adviser can use cross trades to balance client accounts and save transaction costs. Cross trading, however, carries significant risks, including those associated with disclosure, valuation and conflicts of interest. A recent SEC settlement order against an investment adviser illustrates some of those risks. Even though the adviser disclosed to clients that it would engage in cross trading and did not benefit from that cross trading, the SEC charged that those transactions benefitted certain clients at the expense of others; that the adviser failed to adopt adequate cross trading policies and procedures; and that it failed to follow the policies it did have. This article analyzes the terms of the order, with additional insight from an experienced industry practitioner. For more on hedge fund manager cross-trading practices, see “Katten Forum Identifies Best Practices for Hedge Fund Managers Regarding Best Execution, Soft Dollars, Principal Trades, Agency Cross Trades, Cross Trades and Trade Errors” (Mar. 13, 2014).