Articles By Topic
By Topic: Aberrational Performance Inquiry
-
From Vol. 6 No.16 (Apr. 18, 2013)
SEC Commissioner Walter Explains How an Overworked and Under-Resourced SEC Staff Can Nonetheless Examine Private Fund Advisers Effectively
On April 16, 2013, SEC Commissioner Elisse Walter addressed the 2013 NASAA Public Policy Conference in Washington, D.C. The general theme of Walter’s address was that with respect to examinations of investment advisers, federal and state securities regulators have more obligations than they have resources. Specifically, the Dodd-Frank Act reallocated responsibility for examinations of small and mid-sized investment advisers from the SEC to state securities regulators. See “NASAA Report Identifies Most Commonly Cited Investment Adviser Deficiencies Found in Coordinated State Adviser Examinations and Recommends Compliance Best Practices for Mid-Sized Hedge Fund Managers,” The Hedge Fund Law Report, Vol. 5, No. 12 (Mar. 22, 2012). While part of the intent of this reallocation of responsibility was to “free up” the SEC’s examination resources, Dodd-Frank may have increased the SEC’s total workload by bringing private fund advisers under its regulatory, examination and enforcement auspices. See “Challenges Faced By, Risks Encountered By and Lessons Learned From First Filers of Form PF,” The Hedge Fund Law Report, Vol. 6, No. 4 (Jan. 24, 2013). In short, state securities regulators have more advisers to examine and federal securities regulators have larger and more complex advisers to examine. Yet neither has materially more budget. So how are the various regulators supposed to conduct adequate examinations and protect investors? Walter’s speech was intended, in part, to address that question by sharing the SEC’s learning with her state counterparts. To do so, Walter discussed the challenges presented by small firms; three specific ways in which SEC examination staff members have remained effective in light of limited resources; and relevant examination statistics. Walter’s speech was, in effect, a follow-up to her statement on the SEC’s 2011 Study on Enhancing Investment Adviser Examinations. For a discussion of that study, and of Walter’s contemporaneous statement, see “Key Insights for Registered Hedge Fund Managers from the SEC’s Recently Released Study on Investment Adviser Examinations,” The Hedge Fund Law Report, Vol. 4, No. 5 (Feb. 10, 2011).
Read Full Article … -
From Vol. 4 No.44 (Dec. 8, 2011)
Hedge Fund Managers with Unexplained Aberrational Performance Are More Likely to Become Targets of SEC Enforcement Actions
In a December 1, 2011 press release, the Asset Management Unit of the SEC’s Division of Enforcement (Division) announced the Aberrational Performance Inquiry (Inquiry), a new initiative to identify and combat hedge fund fraud. Under the Inquiry, the Division is using proprietary risk analytics to screen hedge funds’ performance returns to determine whether the stated returns are consistent with the fund’s investment strategy or appropriate benchmarks. If the Division identifies a hedge fund whose performance is aberrational – too high, too low or inconsistent with the fund’s strategy – the Division is likely to undertake additional quantitative and qualitative screens to determine the source of the aberration. Such screens may include contacting the fund’s manager directly, looking more closely at the sources of stated returns and examining factors other than returns. This article: discusses the Inquiry in greater depth; details the factual and legal allegations in the SEC’s administrative proceeding against unregistered investment adviser LeadDog Capital Markets LLC and its general partners – an action that was brought as part of the Inquiry; and identifies specific practices for hedge fund managers to consider in light of the Inquiry. For more on the Inquiry based on information that was publicly available as of April of this year, see “SEC’s Hedge Fund Focus to Include Review of Funds That Outperform the Market,” The Hedge Fund Law Report, Vol. 4, No. 14 (Apr. 29, 2011).
Read Full Article … -
From Vol. 4 No.44 (Dec. 8, 2011)
SEC Accuses Former Portfolio Manager of Hedge Fund Millennium Global Emerging Credit Fund and Broker-Dealer Accomplice of Fraud in Conspiring to Inflate the Fund’s NAV
In parallel civil and criminal actions, the SEC and DOJ, respectively, brought charges alleging hedge fund valuation fraud. Like the LeadDog matter described above, the SEC action was brought as part of the Enforcement Division’s Aberrational Performance Inquiry. This article describes the factual and legal allegations, and sheds additional light on what the Aberrational Performance Inquiry means for hedge fund managers.
Read Full Article …