As reported today on FINalternatives, smaller hedge funds would have to register with the Securities and Exchange Commission under an amendment to the financial regulation reform bill making its way through Congress. Continue reading
It has been reported that a bankrupt hedge fund is in talks with Goldman, Sachs & Co., to recoup losses it sustained in the “Timberwolf” securities deal.
invested approximately of $100 million in a $1 billion security Goldman packaged and sold as “Timberwolf” in Q1 2007. If you have been following the Goldman Sachs Senate Subcommittee investigations this week you would have heard that this deal was criticized in in-house e-mails. Namely, “Boy, that Timberwolf was one [$%&!] deal.”
The hedge fund is said to have lost approximately $56 million on the Timberwolf security. Goldman has not yet commented on its talks with the hedge fund.
As reported earlier on this blog, the Securities and Exchange Commission filed a lawsuit April 16 against Goldman alleging that the firm secretly created investments designed to fail while a hedge fund manager, John Paulson, who helped package the deal, was betting against them.
As compliance professionals, this should stand as an acute reminder to train employees on the importance of using discretion in drafting and sending out e-mails and other electronic communications (among a whole host of other compliance related issues!). While often tagged as a best practice, firms should implement an electronic communications (i.e., emails and instant messages) monitoring and review system. People tend to forget that once an electronic communication is put out in cyberspace it can and may be used against (or for) you. While training and monitoring can never stop someone from committing a fraud or potential fraud (and this is not to imply that Goldman is guilty in anyway — I’ll leave that decision to the courts!), it can certainly help catch it before it grows into something much bigger.
Advisers Act Rule 206(4)-7 requires that SEC-registered hedge fund managers conduct an annual compliance review of their compliance infrastructure and procedures. In adopting the Rule, the SEC did not specify exactly what the annual review should entail.
Today, HedgeOp Compliance CEO Bill Mulligan taught a webinar on “Conducting an Annual Compliance Review” as part of HedgeOp’s Excellence in Compliance seminar series. This seminar looks at HedgeOp’s suggested method for conducting an annual review including: review of compliance inventory items, conflicts of interest of review, use of employee and service provider questionnaires and more. This seminar is not only geared towards SEC-registered managers, but also unregistered managers looking to conduct an annual compliance review as a form of “best practice.”
Download Presentation Materials
Going back to yesterday’s subject of privacy forms, I thought it would be good to focus on some of the basics of Reg S-P from the perspective of an investment adviser. When developing privacy policies, all investment advisers should understand the following: Continue reading
Eight federal regulators (including the SEC and CFTC) recently released a final version of a model privacy notice that will make it easier for consumers (i.e. investors/advisory clients) to understand how financial institutions collect and use personal information.
As way of background, the Gramm-Leach-Bliley Act contains a series of requirements governing the disclosure and use of non-public personal information by financial institutions. The GLB Act requires the SEC (among others) to carry out the purposes of the provisions and establish standards for their application. The SEC’s Reg S-P covers investment companies, broker/ dealers and registered investment advisers. In 2006, the Financial Services Regulatory Relief Act of 2006 amended the GLB Act to require the applicable agencies to provide a succinct model form that allows consumers to easily compare the privacy practices of different financial institutions.
The initial proposed form was released in 2007 and after a comment and research period, a new model form has now been released. This new model form (there’s actually two versions–one with opt-out and one with no opt-out), which can be found here, provides a safe harbor for complying with the privacy rules.
Willkie Farr & Gallagher has a very nice summary of some of the other features and drawbacks of the new model privacy form.
With all the recent attention on insider trading, I thought it would be useful to take a quick look at some of the basic concepts involved.
The term “insider trading” itself is not defined in the federal securities laws, but generally is used to refer to the use of material non-public information to trade in securities (whether or not one is an “insider”), or the communication of material non-public information to others. Section 204A of the Investment Advisers Act requires that all investment managers adopt formal policies which forbid any member, officer, director or employee from “insider trading.”
Although not specifically defined, it is generally understood that the law prohibits:
Next we’ll examine a few steps that advisers can take in order to minimize the risks of insider trading. Continue reading
From time to time we have industry experts come on board to guest blog in order to provide our readers with interesting and insightful commentary. Today’s article is by Tom Young of EXENET, a leading IT consultancy.
Recent amendments to Regulation S-P has brought greater attention to high-profile cases where organizations are accused of failing to provide adequate customer information protections as outlined in Rule 30(a). For example: when an IT department fails to follow up on anti-virus problems or for leaving 5,000 customer records at the curb. Continue reading
It is a smart business decision for all investment managers to formally require that all movements of money be authorized by the signature of two senior officers of the manager. This will not require that checks are signed by two individuals, but that the authorization to sign a check or commence a wire transfer will require a written authorization by two senior officers or executives. This requirement should be adopted as a control mechanism in a manager’s compliance manual. Continue reading
From time to time we have industry experts come on board to guest blog in order to provide our readers with interesting and insightful commentary. Today we have Kevin Phillip and Wade Kenny of DMS Management discussing the implications of SEC audits to offshore fund managers.
It has long been a fact of life for registered investment advisers – preparing for, and surviving, the SEC examination. While, understandably, no organization looks forward to such an examination, its importance remains. With proposed amendments from the SEC, it may become an even more frequent fact of life for the investment adviser. Though few would argue that this is not in the best interest of investors, or the industry in general, the implications of these examinations raise some interesting questions for the offshore hedge fund and its service providers. Continue reading
With the recent explosion of Twitter and other Web 2.0 venues (i.e. LinkedIn, Facebook, etc), one begins to wonder how these technologies affect advisory firms from a compliance perspective. More and more of late, we see businesses turning to Twitter and similar sites to help increase their business, generate interest and to just simply express their views. What are some of the things that investment advisers need to think about as it relates to Web 2.0 technologies?