More On Legal & Compliancefrom The Advisor's Professional Library
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
A significant percentage of hedge fund professionals have witnessed misconduct, and say they lack confidence in regulators and their own leaders, according to a study released Tuesday.
ORC International conducted a confidential online survey in February and March of 127 respondents age 18 or older who work in the hedge fund industry. The survey was commissioned by the law firm Labaton Sucharow, HedgeWorld and the Hedge Fund Association.
The survey’s findings include the following:
— 46% of respondents reported that their competitors likely had engaged in unethical or illegal activity in order to be successful
— 35% reported feeling pressured by their compensation or bonus plan to violate the law or engage in unethical conduct, while 25% reported other pressures that might lead to unethical or illegal conduct
— 13% said hedge fund professionals may need to engage in unethical or illegal activity in order to be successful and an equal percentage said they would commit a crime—insider trading—if they could make a guaranteed $10 million and get away with it
— 30% said they had personally observed or had firsthand knowledge of wrongdoing in the workplace
— 87% said they would report wrongdoing, given protections and incentives such as those offered by the SEC Whistleblower Program, of which 83% were aware.
The investor protection whistleblower program has broad extraterritorial reach and offers eligible whistleblowers, regardless of nationality, significant employment protections, monetary awards and the ability to report anonymously, according to a statement of the survey findings.
It said Congress had established an Investor Protection Fund, with a current balance of more than $450 million, to ensure adequate funds were available to pay awards.
“The high percentage of hedge fund professionals that are aware of the SEC Whistleblower Program and are willing to report wrongdoing is extremely encouraging,” Jordan Thomas, chairman of the whistleblower representation practice at Labaton Sucharow, said in the statement.
“Without individuals willing to report possible securities violations, internally or externally, responsible organizations and law enforcement authorities cannot police the marketplace effectively and efficiently.”
Other survey findings:
— 29% reported that it was likely they would be retaliated against if they should report wrongdoing in the workplace
— 28% said if leaders of their firm learned that a top performer had engaged in insider trading, they would be unlikely to report the misconduct to law enforcement or regulatory authorities; 13% said that leaders of their firm would likely ignore the problem
— 54% charged that the SEC was ineffective in detecting, investigating and prosecuting securities violations
— 34% said that recent regulation and law enforcement scrutiny would weaken the hedge fund industry.
— 93% maintained that their firm put the best interests of investors first.