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Article
Publication date: 1 July 2004

Derek M. Meisner

Following adoption of section 206(4)‐7 under the Investment Advisers Act of 1940 and Rule 38a‐1 under the Investment Company Act of 1940 (hereinafter “CCO Rule”), Chief…

Abstract

Following adoption of section 206(4)‐7 under the Investment Advisers Act of 1940 and Rule 38a‐1 under the Investment Company Act of 1940 (hereinafter “CCO Rule”), Chief Compliance Officers affiliated with investment advisers, mutual funds, and hedge funds have reason to worry that the U.S. Securities and Exchange Commission (“SEC”) might turn its attention toward their companies. The SEC is funded to take action; its budget for enforcement has increased exponentially in recent years, and the agency’s own statistics show that it has been busy: in fiscal year 2004, the SEC brought 639 enforcement actions, many of which pertained to market‐timing, directed brokerage, and “soft‐dollar” issues. In addition, the SEC recently has signaled that it is conducting mini‐sweeps into whether brokerage commissions on index funds were used improperly for research, and mutual funds affiliated with securities lending agents are being compensated appropriately. hat happens if your company becomes the subject of an SEC investigation? This article will set forth some practical steps a chief compliance officer (“CCO”) should consider in the event that her company receives notice that it is under SEC scrutiny. These steps apply whether the CCO is independent of the company’s legal department, or functions as in‐house counsel.

Details

Journal of Investment Compliance, vol. 5 no. 3
Type: Research Article
ISSN: 1528-5812

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Article
Publication date: 1 January 2005

Derek M. Meisner

Every month, many hedge fund managers grapple with a fundamental conflict of interest. The conflict arises when a fund manager, whose compensation is based on fund…

Abstract

Every month, many hedge fund managers grapple with a fundamental conflict of interest. The conflict arises when a fund manager, whose compensation is based on fund performance, is charged with determining the value of the complex or illiquid securities in his portfolio. These securities often do not receive reliable market quotes, and may be difficult to value. Accordingly, a fund manager may be tempted to misprice the hard‐to‐price names in his account in order to bolster fund performance, and increase his own compensation. The situation is somewhat analogous to a chief financial officer calculating his corporation’s profits, all the while knowing that his calculations will affect his bonus. Change, however, is on the horizon. On December 2, 2004, the United States Securities and Exchange Commission (“SEC” or “Commission)” amended the Investment Advisers Act of 1940 (“Advisers Act)” to require certain hedge fund advisers to register with the Commission (the “Rule)”. Under the Rule, registered hedge fund advisers will be required to make their books available to SEC examiners by February 1, 2006, and, in turn, subject their valuation methods and policies to regulatory scrutiny.

Details

Journal of Investment Compliance, vol. 5 no. 4
Type: Research Article
ISSN: 1528-5812

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