Speaking last week at the IA Watch Commitment to Compliance conference for investment advisory compliance professionals in Philadelphia, the director of the SEC’s Office of Compliance Inspections and Examinations, Andrew Bowden, discussed certain patterns of non-compliance the SEC has found in its examinations of nearly 200 hedge fund managers performed since the SEC gained oversight authority over a greater range of investment managers under the 2010 Dodd-Frank Act. Articles by Reuters, Bloomberg, and the Wall Street Journal, among others, reported on Mr. Bowden’s remarks.
Mr. Bowden noted that the SEC examinations foundcertain hedge funds selectively using top-performing past recommendations in their marketing activities, while avoiding disclosure of recommendations with unfavorable results. Mr. Bowden also reported that SEC has commonly found weakness in funds’ valuation policies and procedures; he noted that the SEC has found a number of funds employing “valuation policies and procedures [that] aren’t highly evolved and aren’t very specific.” He also said the SEC has observed somefunds improperly modifying their valuation methodologies year-by-year or even quarter-by-quarter, leading to higher fees for investors, without proper disclosure to the investors.
Mr. Bowden said the SEC is nearing completion of this round of examinations, in which the SEC aimed to review approximately one quarter of the roughly 1,200 hedge and private equity fund advisers newly registered with the SEC as a result of the Dodd-Frank Act. He said the agency will publish a report of its findings, although no delivery date has been set.