Gene A. Gohlke, the Associate Director of the SEC’s Office of Compliance Inspections and Examinations (OCIE), recently spoke on a panel at the Practicing Law Institute’s investment management seminar, where he made some interesting statements regarding the SEC’s current examination strategies — more specifically, the resurgence of the “surprise” exam.Mr. Gohlke said the SEC is currently less focused on maintaining its regular examination schedule of routine audits, and is more focused on following up via a surprise exam on specific advisers that are the subject of tips and complaints.  With respect to specific advisers that may be engaged in wrongdoing, Mr. Gohlke said the current practice of the SEC is to “simply show up” so as not to give the target firms lead time to clean up or cover up their bad practices.

One impetus for the recent surge in “complaints-based” exams is that the OCIE is making use of the newly-created Office of Market Intelligence, which is responsible for the collection, analysis, and monitoring of the many tips, complaints, and referrals that the SEC receives each year.   The SEC created the Office of Market Intelligence in the face of harsh criticism that the agency failed to uncover massive frauds such as the Madoff ponzi scheme, despite receiving numerous tips about such schemes.  According to Mr. Gohlke, once OCIE decides to initiate a “complaints-based” exam, it will likely broaden it beyond the complaint if the adviser hasn’t been examined recently, or at all, or is in a remote location.