Compliance officers unaware of SEC cases

A good portion of fund managers don’t keep track of major SEC investigations, research shows.

The US Securities and Exchange Commission (SEC) likes to trumpet its enforcement actions and settlement winnings to warn financial players about the risks in securities fraud. However, it seems a large portion of private fund managers aren’t hearing that message.

Cipperman Compliance Services (CCS), a consultancy, asked GPs about six high-profile SEC investigations to find that nearly half (47 percent) of respondents weren’t aware of any of them. The two cases that caught the most attention were insider trading actions against hedge funds SAC and Galleon, which about half of GPs said they were aware of.

Receiving significantly less attention is the recent case against New York hedge fund Paradigm Capital, which represented the first time the SEC exercised recently-granted powers that allow it to punish investment advisers for retaliating against employees that blow the whistle on bad behavior. Those charges were brought in June.

“We will continue to exercise our anti-retaliation authority in these and other types of situations where a whistleblower is wrongfully targeted for doing the right thing and reporting a possible securities law violation,” said at the time Sean McKessy, chief of the SEC’s Office of the Whistleblower.

The survey, which also canvassed the opinions of asset managers, brokers and wealth managers, noted that alternative managers in particular” seemed to report less engagement with the realities of post Dodd-Frank compliance than other parts of the financial services sector”.

“Many firm leaders have no regulatory background, so they don’t know where to begin”, said CCS head Todd Cipperman. “These firms are also being pushed by institutional clients including public plans, mutual funds, and defined benefit plans to implement a credible compliance program.”

This article originally appeared in Private Funds Management.