From the September 2009 issue of Investment Advisor • Subscribe!

SEC Bulks Up Enforcement

More On Legal & Compliance

from The Advisor's Professional Library
  • Dealings With Qualified Clients and Accredited Investors Depending upon an RIAs business model and investment strategies, it may be important to identify “qualified clients” and “accredited investors.”  The Dodd-Frank Act authorized the SEC to change which clients are defined by those terms.
  • Agency and Principal Transactions In passing Section 206(3) of the Investment Advisers Act, Congress recognized that principal and agency transactions can be harmful to clients. Such transactions create the opportunity for RIAs to engage in self-dealing.

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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