SEC to make sure investor/adviser accounts match
The Securities and Exchange Commission has announced that it will begin contacting investors to make sure they have the assets their investment advisers are reporting.
The Securities and Exchange Commission has announced that it will begin contacting investors to make sure they have the assets their investment advisers are reporting.
“The commission’s examination staff has determined that in order to perform a valid verification of assets, the staff must request independent confirmation of investor assets from various third parties,” Gene Gohlke, associate director of the SEC’s Office of Compliance Inspections and Examinations, wrote in a March 9 letter sent to several trade associations representing advisory firms that are examined by the SEC.
The agency’s examination staff may contact advisory-firm clients, hedge fund investors and managers, bank and broker-dealer custodians, account administrators, derivative counterparties, clearing firms and advisory-firm auditors, the letter said.
The SEC will look to confirm that investors’ account balances, as of specific dates, are consistent with records held by advisory firms and that all transactions in the accounts are authorized, the letter said.
These requests “should not be considered as an indication by the commission or its staff that any violations of law have occurred, nor should they be construed as an adverse reflection upon the adviser,” Mr. Gohlke wrote.
The SEC is taking the action in the wake of the massive fraud scandal at Bernard L. Madoff Securities LLC of New York.
A chief concern is whether investors will be alarmed by the SEC’s action, said David Tittsworth, executive director of the Investment Adviser Association of Washington, which received one of the SEC’s letters.
However, Mr. Tittsworth said, his group welcomes the SEC action.
“I’m pleased,” he said. “I think that they’re trying to do their job and correct some of the practices that contributed to a situation like Madoff. This is a responsible and proactive step by the SEC.”
The SEC has been heavily criticized in recent months for not detecting the fraud at the Madoff firm, which allegedly had been conducting a huge Ponzi scheme for years.
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