More On Legal & Compliancefrom The Advisor's Professional Library
- Using Solicitors to Attract Clients Rule 206(4)-3 under the Investment Advisors Act establishes requirements governing cash payments to solicitors. The rule permits payment of cash referral fees to individuals and companies recommending clients to an RIA, but requires four conditions are first satisfied.
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
Rep. Scott Garrett, R. N.J., chairman of a House subcommittee, is calling on the Government Accountability Office (GAO) to conduct a “comprehensive evaluation” of the Securities Investor Protection Corp. (SIPC) Trustee Irving Picard’s handling of the liquidation of Bernard L. Madoff Investment Securities as well as the Securities and Exchange Commission’s (SEC) “involvement and oversight” of the matter.
Garrett (left), who heads the House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, told the GAO in a June 3 letter that Picard, the SIPC Trustee in the Madoff case, “has been pursuing policies that are in direct conflict with the goals of protecting investors, maintaining fair, orderly and efficient markets, and facilitating capital formation.” These goals, he said, “are the central mission of the SEC, which supposedly supervises SIPC, but has been asleep at the switch.”
The SIPC Trustee’s actions, Garrett continued, are also inconsistent with the Securities Investors Protection Act (SIPA), which is why the Capital Markets Subcommittee re-introduced in February H.R. 757, the Equitable Treatment of Investors Act, “to ensure the law is followed as it was intended to be.”
Garrett was joined in his GAO request by subcommittee members Rep. Peter King, R-N.Y.; Rep. Ileana Ros-Lehtinen, R-Fla.; and Rep. Carolyn McCarthy, D-N.Y. Garrett went on to say that he and his colleagues on the subcommittee turned to the GAO on a bipartisan basis because the “SEC has informed its Inspector General that a near-term inspection of SIPC is unlikely.”
The SEC’s IG argues in his March 30 report on oversight of SIPC that it would be disruptive to conduct an inspection in the midst of two large-scale liquidations—Madoff and Lehman Brothers.
Among the subcommittee’s concerns, Garrett told the GAO, is the Trustee’s use of the so-called Net Investment Method (NIM) formulation for determining investor eligibility for SIPC protection in the Madoff case.
“The serious concerns we have about the NIM formulation stem from the fact that the end result it produces--namely the Trustee suing innocent investors for so-called ‘clawbacks’--causes outcomes that are in direct conflict with the SEC’s mission to protect investors, maintain fair, orderly and efficient markets, and facilitate capital formation,” Garrett said.
The GAO should also prepare a “thorough history of SIPC’s selection of Irving Picard as Trustee, and the Baker Hostetler law firm as counsel to the Trustee,” Garrett’s letter recommended, “including the status of that process at the time Picard joined Baker Hostetler, and a summary of all the significant terms of the employment or compensation agreement(s) or other agreements between SIPC, Picard, and/or Baker Hostetler.”