"An enforcement wave is coming," warns a former assistant director
at the Securities and Exchange Commission's asset management unit
in a Dec. 4
InvestmentNews article, "The world is about to change for investment advisers."
A quick look at the November’s big enforcement actions shows the
former assistant director may be correct.
On Nov. 10, the SEC charged San Diego-based
Western Pacific Capital Management LLC and its president, Kevin James O’Rourke, with investment fraud in connection to the non-public offering of stock
by Ameranth Inc. A day earlier, the SEC charged two Minnesota-based
hedge fund managers with facilitating the $3.65 billion Petters
Ponzi Scheme. And, on Nov. 17, the Commission brought charges against broker-dealerFTN Financial Securities Corp. (FTN) for allegedly assisting the now bankrupt Sentinel Management Group, Inc.
(Sentinel) in covering up Sentinel’s alleged 2006-2007 investment fraud.
Additional examples of the "SEC’s newfound aggressiveness"
included in the article were several actions from the last week of November.
In just one week, the SEC charged three advisory firms with inadequate
or nonexistent compliance programs, and charged three hedge fund advisory
funds with fraudulent violations, improper use of fund assets, and lying
about returns. Six individuals were also charged.
In the article, Robert Khuzami, director of the SEC's enforcement division,
is quoted comparing the SEC’s new enforcement efforts with former
New York Mayor Rudy Giuliani’s efforts to clean up NYC in the 1990s:
"For Rudy, it was a focus on subway turnstile jumpers and squee-gee
men," Mr. Khuzami said. "For us, it's advisers who lie about
graduating Phi Beta Kappa, conceal their association in a past failed
business venture or inflate their assets under management, who might well
be the same persons who outright steal your money when the markets turn
If November’s actions – and Khuzami’s words – are
indeed an indicator of an impending securities fraud enforcement wave,
this month will likely be a tough one for advisers and brokers, and a
good one for investors. To learn more, read the full article