Marking the fifth anniversary of the formation of the SEC Enforcement Division’s Asset Management Unit (the 'AMU'), unit co-chief, Julie Riewe, highlighted the AMU's enforcement priorities for 2015 and reiterated that conflicts of interest remain "[an] overarching, perennial priority."
In a speech titled "Conflicts, Conflicts, Everywhere," Ms. Riewe noted that the AMU currently comprises 75 professionals located in 12 SEC offices nationwide and that the unit, tasked with enforcing the Commission’s rules for registered investment companies, hedge funds, private equity funds, separately managed accounts, and retail accounts, will be focusing on conflicts of interest, valuation, and compliance and controls issues in the coming year.
Specifically, Ms. Riewe expects increases in enforcement actions involving undisclosed conflicts and valuation issues. The AMU will continue to refine the Aberrational Performance Inquiry, the unit’s propriety risk analytics identifying hedge funds with suspicious returns. Ms. Riewe emphasized that conflicts of interest must be disclosed, advisors and managers must identify and address all potential conflicts of interest, and conflicts of interest will subject advisors and managers to possible enforcement.
These highlights come soon after another speech in which Ms. Riewe described conflicts of interests and an "overarching risk area…into which all of the more granular priorities" of the unit will fall.
Significantly, the AMU co-chair also detailed plans for the AMU to work closely with other divisions and exam staff to bring more undisclosed and misallocated fee and expense cases.
Although recent comments have focused on conflicts of interests, the SEC's cybersecurity initiative remains in full force and will be part of nearly any SEC audit of investment advisors, separately managed accounts, private equity, or hedge fund audit.
The AMU aggressively pursued enforcement cases in 2014 and expects even more actions in 2015. In addition to those discussed in this update, best execution failures, undisclosed outside business activities, related party transactions, fee and expense misallocation in the private fund context, and undisclosed bias toward proprietary products and investments are expected to be subject to increase enforcement.
The increased activity of the AMU and other SEC divisions, along with heightened enforcement activity, make sophisticated compliance more important than ever for those in the private fund industry.