More On Legal & Compliancefrom The Advisor's Professional Library
- 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 communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
- Anti-Fraud Provisions of the Investment Advisers Act RIAs and IARs should view themselves as fiduciaries at all times, whether they meet the legal definition or not. Deviating from the fiduciary standard of full disclosure while courting clients may cause the advisor significant problems.
The underlying portfolio of securities that backed the synthetic collateralized debt obligation (CDO), named "ABACUS 2007-AC1," was connected to the performance of residential subprime mortgage backed securities (RMBS). The SEC complaint alleges it was not disclosed to investors that "a large hedge fund, Paulson & Co. Inc. ("Paulson"), with economic interests directly adverse to investors in the ABACUS 2007-AC1 CDO, played a significant role in the portfolio selection process."
The SEC further alleges that Paulson & Co., Inc., "effectively shorted the portfolio," by creating credit default swaps (CDS), with Goldman Sachs, and that Paulson, because of this "short interest," had "economic incentive" to pick RBMS that it expected would drop in value for the portfolio.Comments? Please send them to email@example.com. Kate McBride is editor in chief of Wealth Manager and a member of The Committee for the Fiduciary Standard.