As part of its routine examinations of the books and records of investment advisers, the SEC staff has determined that in order to perform a valid verification of assets, the staff must request independent third-party confirmation of investor cash and securities. In a letter to the Managed Funds Association dated March 9, 2009, Gene Gohlke, Associate Director of the SEC’s Office of Compliance Inspections and Examinations (OCIE), stated that as part of this new protocol, the SEC staff will contact various third parties, including investors in hedge funds and individually advised clients. The goal is to ensure that investor assets are intact and held by the actual custodian that the investor thinks is holding them.
To avoid unnecessary concern, investment advisers should promptly alert their clients that they may be contacted by the OCIE asking them to confirm information such as account balances and dates of specific transactions. The SEC staff has said that such account confirmation requests should not be viewed as an indication by the SEC that unlawful conduct has occurred, or construed as an adverse reflection on the advisory firm.