Compliance Solutions for Investment Advisers

Monthly Archives: November 2013

Undisclosed Principal Transactions

The SEC recently announced charges against two Houston-based investment advisory firms and three executives for engineering thousands of principal transactions through their affiliated brokerage firm without informing their clients. In a principal transaction, an investment adviser acting for its own account or through an affiliated broker-dealer buys a security from a client account or sells

SEC Examines Only 8% of Advisers

During Fiscal Year 2012, despite improved risk-based analysis to select examination candidates in its examination program, the SEC was able to conduct on-site examinations of only about eight percent of registered investment advisers. Over 40 percent of SEC-registered investment advisers have never been examined. In practice, this equates to an approximately 13-14 year examination cycle

Investment Adviser Examination Improvement Act of 2013

The goal of this legislation is to amend the Investment Advisers Act of 1940 to require certain investment advisers to pay fees to help cover the costs of inspecting and examining investment advisers under the Advisers Act.

Year-End Compliance Checklist

Dear Compliance Professional, There are a few compliance actions that all investment advisers can benefit from undertaking at this time of year. Some obvious, some not so obvious. All important. So, without further ado, here is our end-of-the year checklist: 1. Pay Renewal Fees Hopefully, most of you have already logged on to your IARD

Minnesota IARs of SEC Firms Now Required To Register

Prior to now, investment adviser representatives of SEC-registered investment advisers that were located in Minnesota did not have to register with state regulators (unless that had an office in the state). An Order dated October 31, 2013, has been issued by the Minnesota Department of Commerce regarding the “Implementation of Registration Process for Investment Adviser Representatives.”  According to

No Firm Too Small to Escape SEC Scrutiny

Mary Jo White, the SEC Chairperson, stated this past week that strong enforcement by the SEC is “absolutely critical” to market integrity and that the SEC would have zero tolerance for misconduct. White said that the SEC would not ignore small violators to the extent resources allow and that the SEC’s testing of firms would continue unabated, as

SEC Poised for Massive Audit of Hedge Funds

The U.S. hedge fund industry will be deluged with on-site examinations over the next three years, as the Securities and Exchange Commission broadens its oversight of this sector with a focus on strategy, valuation processes and “side pockets,” a leading securities litigator said on Wednesday. “Hedge funds are far more likely to get an audit

Deferred Prosecution

The SEC entered into its first deferred prosecution agreement with an individual. The agreement was with Scott Herckis, former administrator to hedge fund Heppelwhite Fund LP. It recognizes his timely and significant contributions to the SEC’s efforts to halt an on-going fraud at his former hedge fund. At the same time, the five year agreement

Aggregation of Certain Client Assets in Private Funds

The SEC’s Division of Investment Management said, in a Guidance Update published this week, that it would not object if related investment advisors registered jointly with the SEC and operating a single advisory business aggregate investments made by certain investors for purposes of determining if those investors are “qualified clients.” The question comes up in the context of

Annual Registration Renewal Starts Tomorrow

Tomorrow starts the registration renewal period. You need to log on to your IARD account and get a copy of your Preliminary Renewal Statement. Payment is due by December 13th, but we suggest paying well in advance. You have your choice of one of the 3 following payment methods: 1.  E-BILL E-Bill enables your firm

The SEC Speaks (and Speaks)

Dear Compliance Professional, In recent weeks SEC officials have been quite chatty. What differentiates these recent pronouncements from the SEC’s usual speechifying is that the recent stuff contains a trove of useful compliance insights. This Compliance Newsletter summarizes what advisers should take away from this flurry of activity. If you are thinking that all of

Mary Jo White

There is an interesting profile in the New Yorker magazine of the Chair of the SEC. You can find the article here: “Street Cop“

SEC Exam Initiative

SEC inspections chief Andrew Bowden revealed that next year, the SEC plans to target those advisers who have never undergone a compliance examination. Particularly those advisers that have been registered for more than three years and have never faced an SEC exam.

Enforcement Report

An enforcement report from the North American Securities Association slated for release this Thursday (November 7, 2013) finds the following deficiencies among mid-sized firms that made the switch from SEC to State registration: Unlicensed investment adviser representatives; Failing to document suitability in their investment recommendation; and Not providing appropriate privacy notifications to clients. All easily

SAC To Pay $1.8 Billion Fine

SAC Capital Advisors, once among the world’s most successful hedge funds, has agreed to close its doors to outside investors and pay a record-setting $1.8 billion to settle charges that it engaged in inside trading as far back as 1999. Bet they wished they used U.S. Compliance Consultants to manage their compliance program.