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Hedge Fund Adviser Execs May Face Personal Fines if They Ignore Red Flags

A chief financial officer at a hedge fund advisory firm on May 8 settled SEC charges that he failed to act on red flags involving asset mismarking and insider trading. The firm ended up paying more than $10 million, and the CFO agreed to separately pay a $100,000 fine. The lesson: Advisory firm executives need to be on the lookout for signs of fraud, and act on them when they find them.
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Technology: IAA Urges Treasury to Recommend a Principles-Based Approach

As new technologies and networks proliferate among advisory firms and other non-bank financial institutions, many will require regulation, but will that regulation encourage innovation, or stifle it? The Investment Adviser Association, in a recent letter to the Department of the Treasury, urged the Department to support innovation by recommending and encouraging regulators to adopt regulations that are principles-based.
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SEC Keeps Gatekeepers in Its Sights with New Accounting Firm Settlement

The SEC made it known back when Mary Jo White was the agency chair that it would go after what it terms "gatekeepers" – attorneys, accountants, consultants and others – if it believes they took part in fraud. With its May 4 settlement with an accounting firm and two of the firm’s partners, chairman Jay Clayton signaled that his SEC will do the same.
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SEC Issues Share Class Initiative FAQs Six Weeks Prior to First Deadline

Advisers wishing to take advantage of, or at least learn more about, the SEC’s Share Class Selection Distribution (SCSD) Initiative will doubtless find the agency’s May 1 set of 19 answers to frequently asked questions of interest – particularly since they face an initial reporting date of June 12. Those not planning to self-report under the program may also be interested, if only to learn what they won’t have to do.
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Fees and Expenses: OCIE Wants Advisers to Focus on the Nuts and Bolts

Sometimes it’s the basic things that get overlooked, like fees and expenses. When that happens in the asset management community, problems occur and examiners notice – which may be why the SEC’s Office of Compliance Inspections and Examinations this month issued a Risk Alert offering an "Overview of the Most Frequent Advisory Fee and Expense Compliance Issues Identified in Examinations of Investment Advisers." Chief compliance officers would be wise to pay attention.
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Discovery of Fraudulent Registration Offers No Relief from Rule Compliance

One might think that an advisory firm charged with misstating its assets under management in order to register with the SEC could take some solace in believing that it never had to comply with agency rules. After all, such an adviser might think, the Custody Rule, the Books and Records Rule, the Advertising Rule and other rules apply only to SEC registrants. But such an assumption would be a mistake.
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New Share Class Settlements May Increase Self-Reporting Pressure on Advisers

Is it a coincidence? With just under two months before the SEC’s Share Class Selection Distribution initiative’s self-reporting deadline, the agency on April 6 announced new share-class settlements with three advisory firms containing civil money penalties that collectively total almost $2 million. The SEC used the occasion to issue a press release that "strongly encourage[s]" advisers to participate and avoid such fines themselves.
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