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Compliance and Regulatory Services (CARS) Hot Topics for June 2015

For this monthly distribution, we are highlighting a speech by Marc Wyatt, Acting Director of the SEC’s Office of Compliance Inspections and Examination (“OCIE”) after Andrew Bowden’s departure. Mr. Wyatt re-emphasized OCIE’s staff focus on private equity fund managers’ allocation of expenses to the funds they manage by looking back at prior results of the private equity fund presence inspections. He further mentioned how OCIE used the National Examination Program to look at adjacent assets by taking a thematic review of private equity real estate funds. These opportunistic value added strategies are more vertically integrated because the fund adviser also provides or arranges other related types of services, such as property and construction management, valuation, leasing and loan services for a fee. The SEC’s concern is that many of these fees are passed along to the fund either directly or by charging the portfolio companies without proper disclosure. These managers have also been charging back the cost of their employees who provide asset management services and the cost for in-house legal services. The result of these examinations have revealed that at times these ancillary services are indeed not disclosed and when they are disclosed the manager represents that they are provided at below market cost without performing a valid market cost analysis. Mr. Wyatt also explained that additional enforcement action will be forthcoming from presence exams but it takes time as there is a natural lag between examination and enforcement, as the SEC want to be sure it makes thoughtful and informed decisions prior to moving ahead. After laying out past findings, Mr. Wyatt provided a “Glimpse Ahead” by saying that OCIE’s Private Fund Unit is or will be undertaking exams of real estate private equity advisers, credit advisers, and infrastructure and timber advisers to mention a few.

Our Take: We cannot stress enough the importance of maintaining rigorous compliance policies and procedures to address actual and potential conflicts of interest. In fact, Mr. Wyatt supported this position by mentioning that many of the areas of conflict the SEC is looking into may not necessarily be problematic for a private fund adviser as long as the adviser has policies and procedures that are designed to address conflicts.

SEC News 

May 28, 2015 SEC Charges Two Stock Promoters With Conducting Market Manipulation Schemes
May 28, 2015 SEC Names Andrew J. Donohue as Chief of Staff 
May 28, 2015 SEC Announces Charges Against Compliance Director Accused of Defrauding Investors and Stealing Brokerage Firm Assets
May 28, 2015 SEC Announces Agenda for June 3 Meeting of the Advisory Committee on Small and Emerging Companies
May 26, 2015 SEC Charges New York Lawyer and Two Promoters With Market Manipulation
May 26, 2015 SEC Charges Deutsche Bank With Misstating Financial Reports During Financial Crisis
May 21, 2015 SEC Announces Charges Against Investment Firm and Two Executives Accused of Defrauding Police and Firefighter Pension Funds
May 20, 2015 SEC Names Rebecca Olsen Deputy Director of Municipal Securities Office
May 20, 2015 SEC Names Jessica Kane Director of Municipal Securities Office
May 20, 2015 SEC Proposes Rules to Modernize and Enhance Information Reported by Investment Companies and Investment Advisers
May 20, 2015 SEC Charges Brokerage Firm Co-Owners With Defrauding Investors
May 20, 2015 SEC Charges BHP Billiton With Violating FCPA at Olympic Games
May 19, 2015 SEC Chief of Staff Lona Nallengara to Leave Agency
May 18, 2015 Peter J. Curley, Associate Director in the Division of Trading and Markets, to Leave SEC
May 14, 2015 SEC Charges Father and Son in $1.1 Million Insider Trading Scheme
May 14, 2015 SEC Charges Nationwide Life Insurance Company With Pricing Violations
May 14, 2015 SEC Names Wesley R. Bricker as Deputy Chief Accountant
May 14, 2015 Deputy Chief Accountant Dan Murdock to Leave SEC
May 12, 2015 SEC Announces Fraud Charges Against ITT Educational Services
May 11, 2015 SEC Sues Retirement Planners for Making False Claims to Investors
May 8, 2015 SEC and FINRA to Hold National Compliance Outreach Program for Broker-Dealers
May 8, 2015 David Grim Named as Director of the Division of Investment Management
May 6, 2015 SEC Approves Pilot to Assess Tick Size Impact for Smaller Companies
May 6, 2015 SEC Charges Four Former Officers of Delaware Bank Holding Company With Disclosure Fraud
May 5, 2015 SEC Announces Outreach Programs to Help Firms Comply With Regulation Systems Compliance and Integrity

 

Speeches

May 20, 2015 Remarks Before the Exchequer Club of Washington, D.C.
May 13, 2015 Private Equity: A Look Back and a Glimpse Ahead
May 13, 2015 The SEC’s Cooperation Program: Reflections on Five Years of Experience
May 12, 2015 Keynote Speech at New York City Bar 4th Annual White Collar Institute  
May 7, 2015 Remarks before the 2015 Baruch College Financial Reporting Conference

 

FINRA News

May 13, 2015  FINRA Fines Morgan Stanley $2 Million for Short Interest Reporting and Short Sale Rule Violations
May 12, 2015 FINRA's NAC Strengthens Sanction Guidelines for Fraudulent Conduct
May 8, 2015 SEC and FINRA to Hold National Compliance Outreach Program for Broker-Dealers
May 6, 2015 FINRA Sanctions LPL Financial LLC $11.7 Million for Widespread Supervisory Failures Related to Complex Products Sales, Trade Surveillance and Trade Confirmations Delivery

 

(Complete Listing: http://www.finra.org/Industry/Regulation/Notices/2014/index.htm)

FINRA Rule Filings List
(Complete Listing: 
http://www.finra.org/Industry/Regulation/RuleFilings/2014/index.htm)
 

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