Once the SEC identifies possible wrongdoing, don’t compound the problem by further misleading clients during the remediation process. It is possible that this firm could have avoided the $400,000 in fines had it not lied to clients about its past practices.
SEC’s Office of Compliance Inspections and Examinations has issued a Risk Alert
citing transfer agents for deficient safeguards and lost securityholder
procedures. Reporting on 75 transfer
agent examinations over three years, OCIE observed misappropriation of
shareholder funds and theft of physical certificates, inadequate account
reconciliation processes, commingling of funds, and failures to secure physical
access. OCIE also observed failures to
adequately search for lost securityholders including neglecting to send written
notices. OCIE recommends heightened
policies and procedures, fund segregation, frequent reconciliations, locked vaults,
video cameras, periodic audits, and controls around lost property. OCIE published the Risk Alert “in order to
encourage TAs to review and strengthen their applicable policies, procedures,
and controls related to their paying agent operations.”
This is the regulatory warning shot for transfer agents. Expect sweeps and enforcement actions to follow. This Risk Alert also puts registered funds and their Boards and CCOs on notice that they should consider oversight procedures.
Firms doing business outside the United States must create compliance infrastructure to prevent employees at any level from paying bribes. Violations of the FCPA carry severe civil and criminal penalties.
Welcome to the February 2019 edition of the Best of the Law
Firms. In this feature, we recommend
some of the best recent articles and analyses authored by top investment
management lawyers. These articles offer
a more comprehensive review of the issues that we address in our daily “Our
The best law firms cranked out some great articles during
the last several weeks, perhaps feeling a post-holiday burst of energy. Paul Hastings offers a great overview of the
esoteric world of Section 13 and Section 16 filings. Morgan Lewis addresses best execution issues
when recommending mutual fund share classes.
Dechert tries to discern the future of Brexit. There were also some great pieces on
co-investments from Pepper Hamilton, political and lobbying activities from
K&L Gates, and a CFTC survey from WilmerHale.
Broker-Dealers and advisers must abandon the dual-hat compliance model, the practice of naming a non-regulatory professional with multiple executive roles. Firms must retain a competent and dedicated Chief Compliance Officer either by hiring a full-time employee or by retaining the services of an industry-recognized outsourcing firm.