From the September 2009 issue of Investment Advisor • Subscribe!

SEC Bulks Up Enforcement

More On Legal & Compliance

from The Advisor's Professional Library
  • Regulatory Oversight of Investment Advisors Although the regulatory environment is in a state of flux, it is imperative that RIAs adhere to their compliance obligations. To ensure compliance, RIAs and IARs must fully understand what those obligations are.
  • Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communications—to clients, from clients, and about client accounts.  To comply with fiduciary obligations, communications must be thorough and not mislead.

The Securities and Exchange Commission (SEC) is moving at a rapid pace to repair its sullied reputation after being lambasted by Congress for failing to stop the Bernie Madoff Ponzi scheme. During a recent speech before the New York City Bar Association in Manhattan, Robert Khuzami, the new director of the SEC's enforcement division, said that the SEC is giving his division authority to issue more subpoenas and provide people with more incentives to cooperate with investigations. Under the changes, SEC staff could get approval from their supervisors to issue subpoenas, and forego having to get permission from the full Commission.

Comparing the period from late January 2009 to the present to roughly the same period in 2008, Khuzami said the enforcement division has opened 10% more investigations (approximately 525, compared to 475); has been granted 118% more formal orders (which grants the enforcement division subpoena powers--275, compared to 126); has filed 147% more TROs (52, compared to 21); and has filed nearly 30% more actions (397, compared to 306).

Khuzami's comments come at the same time that SEC Chairman Mary Schapiro told the Financial Times in a recent interview that she'd like the SEC to become a self-funded agency like other regulators. The Investment Adviser Association (IAA) said in a statement that it "is in strong agreement with Chairman Schapiro that the SEC would be better able to fulfill its investor protection mission if it was able to operate as a self-funded agency like other financial regulators." Being self-funded would mean the SEC would no longer be dependent upon legislative appropriations.

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