Now that you’ve seen what ACA Insight has to offer, don’t be without it. Subscribe now!

The weekly news source for investment management legal and compliance professionals

Current subscribers - please log in to the website in the upper right-hand corner

News January 4, 2010 Issue

The Year In Review

Here we are again. Ready to put the old year behind us and tackle a new one, which we are convinced has to be better than the one we just got through. (The January stock market performance will let us know which way the 2010 pendulum swings, right?)

It was a fairly brutal year, packed with the hard work of financial reform, correcting course, and rebuilding public trust.

And that was just the political scandals. Remember California assemblyman Mike "Mr. Microphone" Duvall, Representative William "I keep my bribery cash in the freezer" Jefferson (D-LA), and Senator John Ensign (R-NV), the Promise Keeper who allegedly paid a staffer to promise silence about his affair with another staffer?

Yes, itís been a long twelve months.

Letís take a stroll down memory lane, with a little license, and recap the highlights:


Barack Obamaís historic inauguration is only slightly overshadowed by Mary Schapiroís arrival as the first female chairman of the SEC (appointed, not acting). She rolls up her sleeves and tackles the overhaul of a badly tarnished Ė and by its own admission, out-of-date Ė agency, setting the tone for the rest of the year.

Bernard Madoff, who confessed his crimes in December 2008, reveals the depths of his contrition shortly after the first of the year, when he attempts with his wife Ruth to mail jewelry valued at $1 million to relatives.

Captain Chesley "Sully" Sullenberger amazingly lands a commercial jetliner in the Hudson River after a flock of geese jam his engines, without any loss of life (not counting the geese).


Obama announces a $500,000 salary cap for executives at companies receiving federal bailout money. Madoffís client list becomes public, revealing star and famous clients such as Kevin Bacon, Kyra Sedgwick, Zsa Zsa Gabor, Steven Spielberg, and Elie Wiesel, as well as large banks such as Deutschebank.

Harry Markopolos testifies before Congress about his multiple attempts to prompt the SEC to action regarding Madoff. At the hearing, Representative Gary Ackerman (D-NY) goes postal (almost) on then-Enforcement director Linda Thomsen, then-OCIE director Lori Richards, and then-acting general counsel Andy Vollmer. New SEC Chairman Schapiro pledges to House Financial Services Capital Markets subcommittee chairman Paul Kanjorski (D-PA) that together, they can "determine a course forward that will meet all of our interests."

Public attention turns away from Madoff long enough to take in the mere $8.1 billion fraud allegedly conducted by blood-oath making R. Allen Stanford with the assistance of blood-oath taking corrupt securities officials in Antigua.

OCIE associate director Gene Gohlke announces that SEC staff will begin confirming the existence of adviser client assets directly with the custodian and the client.

Further evidence of Madoffís contrition is revealed when prosecutors learn that his wife Ruth withdrew $15.5 million from fund accounts in the days before Madoff confessed his scheme.


Insurance giant AIG, bailed out by the government with taxpayer money, scandalizes the public by seeking to pay $165 million in executive bonuses from Sasha and Maliaís new allowances.

Madoff pleads guilty to 11 felony counts and is sentenced to 150 years in jail.

The SEC charges two New York public officials with extracting millions of dollars in kickbacks from advisers seeking to manage the assets of the stateís largest pension fund, setting the stage for the adviser pay-to-play rule proposal.


Bo the Portuguese water dog arrives at the White House as First Pet. The SEC unleashes a cavalcade of actions involving Ponzi schemes, affinity frauds, and frauds involving hedge funds, setting the stage for remembering what the Division of Enforcement does.


Sonia Sotomayorís nomination for the Supreme Court seat of retiring justice David Souter is only slightly overshadowed by release of the SECís adviser custody rule proposal. Advisers deemed to have custody because they may debit fees from client accounts brace for the possibility (and expense) of surprise audits.


Congressional testimony, and lots of it, floods Capitol Hill as the House and Senate gear up their financial regulatory reform efforts. Schapiro makes her pitch for the agencyís 2010 budget, and the Obama Administration releases its white paper on regulatory reform. The white paper offers to reduce the SECís budgetary needs by harmonizing adviser and broker-dealer regulation.

Money market fund reform is proposed. The SEC and DOJ launch a joint fact-finding mission into target date funds to uncover why funds with the same target date in their name lost widely varying amounts in the market slide of 2008. "Set it and forget it" suddenly meets the harsh light of regulatory scrutiny.

South Carolina governor Mark Sanford hikes the Appalachian Trail all the way to Argentina.


The beat of Congressional testimony goes on. Schapiro describes the state of the SEC and its agenda. Division of Investment Management director Buddy Donohue emphasizes the need to register all private fund advisers. The Obama Administration obliges by introducing the Private Fund Adviser Registration Act of 2009. All private asset managers, including venture capital and private equity managers, managing more than $30 million in assets would register with the SEC. This wipes out all the proposed savings from IA/BD harmonization in the Investor Protection Act of 2009.

Obamaís Beer Summit on the South Lawn of the White House is only slightly overshadowed by the inaugural meeting of the Investor Advisory Committee.

House Financial Services Committee Chairman Barney Frank (D-MA) says he has no plans to push for the establishment of an adviser SRO, "unless they want one."

Form SH short sale reporting ends, though the SEC pledges to require SROs to report the information in the near future.

The D.C. Circuit Court of Appeals, deeming certain procedural justifications for the rule "arbitrary and capricious," remands the SECís indexed annuities rule, ICA Rule 151A, back to the agency for further review.

The Statue of Libertyís crown is reopened to tourists for the first time since 9/11/2001.


Sotomayorís historic Supreme Court confirmation is only slightly overshadowed by the SECís release of the proposed adviser pay-to-play rule. Advisers would be prohibited from managing pension plan assets in connection with certain political contributions, and may possibly lose the ability to use third-party solicitors to arrange dinner and dancing with political officials.

Regulation [what-in-the] S-AM [hill] is released, the follow-on rule to Regulation S-P regarding the privacy of consumer financial information.

Deutsche Investment Management Americas introduces a retail floating NAV money market fund.

FASB futzes around with fair valuation guidance, renaming it (as if that will throw us off the trail) and proposing additional "improvements."


Senator Charles Schumer (D-NY) sets his sights on banning flash orders. The SEC obliges by proposing the withdrawal of the exception in Regulation NMS that allows the practice, and because they never really liked it anyway. The SECís Office of the Inspector General issues its phone-book sized report on the Madoff scandal, revealing that squirrels got into the SEC and ate all of Markopolosís information.

The SEC debuts the new Division of Risk, Strategy and Financial Innovation. Summary prospectuses are officially acceptable for delivery to ERISA plan beneficiaries, according to the Employee Benefits Security Administrationís Field Assistance Bulletin 2009-03.


Obamaís award of the Nobel Peace Prize is only slightly overshadowed by the release of Paul Kanjorskiís draft regulatory reform legislation. The legislation calls for new adviser fees to fund an expanded SEC examination and inspections program, and the extension of the adviser fiduciary standard of care to brokers advising retail customers.

Galleonís Raj Rajaratnam, "master of the rolodex," is charged with insider trading. As a result, redemption demands cause the nearly $4 billion hedge fund to shutter its doors within weeks.

The federal deficit reaches an all-time high of $1.42 trillion. The FDIC closes its 100th bank of the year.

The SEC and CFTC issue their joint report on harmonized independence. Representative Spencer Bachus (R-AL) tries to let FINRA in a back door to adviser oversight in a late-hour amendment to financial reform legislation.

The SEC launches, and also seeks to shed more light on dark pools.


The SECís CDO sweep on advisers is in full swing. So, apparently, is Elin Woodsís driver, as Tiger barely navigates to the bottom of the driveway before being rescued by a tree and 911-dialing neighbors.

Obamaís annual presidential pardon of the Thanksgiving turkey is only slightly overshadowed by the release of amendments to the rules governing NRSROs.


The Supremes hear oral arguments in Jones v. Harris. Weíll soon know whether boards will continue to receive the benefit of the business judgment rule under the Gartenberg fiduciary standard, or if courts might be invited to backstop board decisions with which shareholders disagree. (Whatever happened to voting with your feet?)

The first anniversary of the revelation of the Madoff fraud is met by the SEC with its Madoff "fix" Ė approval of a revised adviser custody rule. The rule amendments spare advisers with constructive custody from surprise audits.

The House observes the Madoff fraud anniversary by passing its version of financial reform legislation. Chairman Frank and Representative Steve Cohen (D-TN) close Bachusís back door to FINRA regulation of advisers. (Go Barney! Go Steve!)

Everyone rushes for the exits and a much-needed end-of-year break.


And as we brace for more in 2010, a prediction:

The arrival of a financial regulatory reform law in 2010 will be only slightly overshadowed by the next "Year in Review," right here.