Investment Advisors in a New Era of Regulatory Scrutiny

Over and above increased activity by Financial Industry Regulatory Authority (FINRA) and other self-regulatory organizations (SROs), investment managers are increasingly coming into the crosshairs of the Securities and Exchange Commission’s [SEC] Division of Enforcement, as I recently noted in this article for the National Association of Active Investment Managers (NAAIM). In 2010, the SEC created its Asset Management Unit—of which I was an Assistant Director and a founding member until July 2011—which solely focuses its investigative and enforcement efforts on investment companies, investment advisers, mutual funds, hedge funds and private equity funds. According to the recently released 2011 Performance and Accountability Report, the success of this new unit is already well established. The Report notes that the SEC brought numerous successful enforcement actions against investment advisors, including against such prominent firms as Charles Schwab, Merrill Lynch, AXA Rosenberg Group, and TD Ameritrade. But the biggest game changer may be the SEC’s revolutionary whistleblower program, which was enacted under Dodd-Frank. The program offers large monetary awards and protection from workplace retaliation to individuals who come forward and report possible violations of the US securities laws. Although the program was only formally implemented in August 2011, the SEC released a report in November 2011, which underscores significant whistleblower activity. The combination of enhanced regulatory scrutiny and significant incentives and protections for whistleblowers adds up to a new and potent enforcement reality for investment managers, who must be ever more vigilant in preventing violations, reporting them when they occur, and protecting those that do come forward to report misconduct.

Named one of the top whistleblower practices/attorneys in the country by The New York Times, Wall Street Journal, NPR and The New Yorker
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