At an SEC enforcement panel at the National Law Journal’s Regulatory Summit in Washington, SEC Commissioner Elisse Walter indicated that the SEC, in proceeding with its “presence examinations” of newly registered private fund advisers, has already noted many instances of poor controls, often regarding fees and expenses. Commissioner Walter elaborated that the staff has noted instances where advisers miscalculate fees, improperly collect fees and inappropriately use fund assets to cover their own expenses. Commissioner Walter noted that SEC staff will continue to examine and question advisers income and fees.
At the same time, Commissioner Walter stated that the examiners have also found that many advisers, especially those with mature businesses, have developed good compliance procedures and risk management controls, despite being newly registered.
While it is still too early in the exam program to draw any overall conclusions, the SEC staff will continue to publicize information and helpful trends or issues as it continues with these presence exams.
In light of these ongoing presence examinations, registered investment advisers should carefully evaluate their compliance programs and ensure that their practices are consistent with their representations and the commitments they make to their clients.