SEC Alert

Watch Your Assets Call it the Madoff effect. The SEC is still reeling from the discovery of the giant decades-long Ponzi scheme that Bernie Maddoff and his helpers pulled off, and trying to put rules in place to make sure it doesn't ever happen again. One major issue is asset custody.

Watch Your Assets

Call it the Madoff effect. The SEC is still reeling from the discovery of the giant decades-long Ponzi scheme that Bernie Maddoff and his helpers pulled off, and trying to put rules in place to make sure it doesn't ever happen again. One major issue is asset custody. Under a new proposed rule amendment, the SEC would require that broker/dealers focus more closely on custody of client assets in their annual audits. If finalized, the rule would require that audits include a review of the controls b/ds have in place to protect and account for customer assets. It would also require broker/dealers that maintain custody of customer assets or self-clear transactions to allow SEC staff and regulatory examiners to review work papers of the public accounting firm that audits the broker/dealer and discuss any findings with the accounting firm. And it would require all broker/dealers to file a new form detailing their custody practices on a quarterly basis.

Hedge Funds Go Legit

Hedge funds have long resisted registering with regulators because they worried that disclosing their investment strategies and holdings would allow copycats to exploit their advantages out of the market. But the day they feared has come. As mandated under Dodd-Frank legislation passed last year, the SEC adopted rules in late June that will amend the Investment Adviser's Act of 1940 to require hedge funds and private equity funds to register with the regulator. That means they'll become subject to oversight, rules and examination for the first time, and have new reporting requirements. Will the industry stop making piles of money for wealthy investors now that regulators are breathing down their necks? Probably not. The SEC isn't asking them to disclose investing strategies or holdings, anyway.

Sheriff Swap

The SEC also adopted Dodd-Frank mandated rules in June that will require the approximately 3,200 investment advisers with between $25 million and $100 million in assets under management to switch to state regulation from SEC regulation. During the first quarter of 2012, SEC registered investment advisers will be required to declare that they are eligible to remain registered with the SEC. Investment advisers who will no longer remain eligible for SEC registration will have until June 28, 2012 to complete the switch to state registration. Those advisors located in states that don't perform examinations (Minnesota, New York and Wyoming) will not be subject to this switch.

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