More On Legal & Compliancefrom The Advisor's Professional Library
- Whistleblowers A whistleblower is any individual providing the SEC with original information related to a possible violation of federal securities law. The Dodd-Frank Act established a whistleblower program that enables the SEC to reward individuals who voluntarily provide such information.
- Code of Ethics Rule The Code of Ethics Rule, found in Rule 204A-1, uses severe consequences for violation to help ensure investment advisors will do the right thing.
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.