More On Legal & Compliancefrom The Advisor's Professional Library
- Differences Between State and SEC Regulation of Investment Advisors States may impose licensing or registration requirements on IARs doing business in their jurisdiction, even if the IAR works for an SEC-registered firm. States may investigate and prosecute fraud by any IAR in their jurisdiction, even if the individual works for an SEC-registered firm.
- 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.
The man behind the largest financial con of all time is playing Grinch this holiday season, decrying what he calls a lack of transparency in the financial markets, and says the growth of hedge funds is forcing market players to take outsized risks in order to earn decent returns.
In a Christmas Eve jailhouse letter to CNBC, Benard Madoff says that insider trading has been around "forever."
"(O)ne would be led to believe that with the recent spate of insider trading prosecution that insider trading is a new development," Madoff writes the network. "This is false. It has been present in the market forever, but rarely prosecuted. The same can be said of front running of orders."
Madoff says markets are suffering from a "lack of transparency" created by the growth of so-called "dark pools"-arrangements outside the established stock exchanges that allow parties to trade stocks privately, with trades and prices only disclosed after the fact.
"Institutions have always attempted to guard this buy and sell information from exposure to the market for fear of being front run," Madoff writes. "Certainly they are entitled to have this right of confidentiality. That being said, the more secret this information, the more valuable this information is to those that can obtain it. Therein lies the problem. It is naive to think that there will be no leakage of this information."
As CNBC notes, Madoff built his fraud on one of the largest hedge funds on Wall Street, which attracted investments from individuals as well as a series of so-called "feeder funds." But Madoff now says the rapid growth of hedge funds and feeder funds-and their commissions and fees-have created a problem for investors and regulators.
"It has been this additional layer of costs that have created the need for more risk to be taken to earn worthwhile returns. This has created a minefield of regulatory problems involving the very reasons that the desire for a lack of transparency has grown. Both of these areas are going to be the greatest challenge that both the industry and the regulators are going to face."