Monday, November 30, 2009

Trader and Investment Banker Big Bonus Expectations

WSJ Reports today that Art Dealers say bonus expectations are stoking strong bidding. Andy Warhol painting "200 One Dollar Bills" fetched $43.7 million at Sotheby's this month is pictured. Go to WSJ article via Google. Flight Options Inc., which sells blocks of flight time on private planes starting at $97,000, says sales are up sharply in the past month. One popular route: the three-hour flight from NJ's Teterboro Airport, a short ride from Manhattan, to Palm Beach International, near second-home hotspots. A senior investment banker at a major Wall Street firm recently planned to impress clients with front-row World Series tickets. The company, a recipient of U.S. government aid, nixed the plans, citing potentially bad publicity. The investment banker wound up schmoozing his clients about 20 rows behind third base at Yankees Stadium.

"We have to be cognizant of the fact that we will be judged in the court of public opinion," Citigroup CEO Vikram Pandit told a gathering of employees this month. Christmas parties normally paid for by Citigroup bankers and traders out of their own pockets are being canceled due to the hostile political environment this year.

Wednesday, November 25, 2009

Calpers Investigates Hedge Fund Oversight, Legal & Financial Risk

The California Public Employees’ Retirement System, the nation’s biggest pension fund with $200 billion, has launched an internal investigation into its own oversight of hedge fund deals, The Los Angeles Times reported.

Calpers found that it had paid $36 million to two hedge fund advisors who were working without contracts, exposing the fund to legal and financial risk. The head of its hedge fund portfolio, which manages $5.8 billion in assets, was temporarily placed on leave and fined, The Times said, citing people briefed on the matter.

Calpers told the newspaper that it was investigating its ties to two hedge fund advisers, Paamco and a unit of Swiss banking giant UBS. Both firms had contracts with Calpers, but they lapsed two years ago, The Times said.

Go to Article from The LA Times »

Thursday, November 19, 2009

FINRA Examiners: More Time in Member offices

"We need to become more nimble and faster about doing our cases," Finra Chief of Enforcement Susan Merrill said. She said she's taken to reciting the nursery rhyme "Jack be nimble, Jack be quick" around the office.

As reported by Dow Jones FINRA is likely to spend more time in broker-dealer offices. On-site inspections and examinations are "something we're going to use a lot more going forward," Merrill said at an industry conference Wednesday. "Announced on-site inspections, I think, will become more common."
Unannounced visits from the regulators are rare, she added.

Finra staff can more quickly request and receive information when they're in a broker-dealer's office, Merrill said. Several major auction-rate cases are still under investigation, she added. Enforcement division investigations, which are focused on potential wrongdoing, are separate from the ongoing exams conducted by Finra's member regulation division.

Ponzi schemes have become a priority for the regulators this year, Merrill said. Enforcement division is also looking at due diligence practices around the sale of private placements.

Additionally, it's looking into Stock Lending from retail accounts to short sellers and disclosures made to those customers. Finra's enforcement division is looking broadly at the way it operates and has made some changes - big and small and structural and philosophical, Merrill said. These include this spring's creation of a whistleblower office and this autumn's formation of an overarching fraud detection and market intelligence unit to oversee all fraud-related issues. Finra must be more diligent about its coordination with the SEC, Merrill said, adding that Finra is also focused on how it identifies new enforcement cases.

Tuesday, November 10, 2009

Should HFs buy and sell what they buy and sell for clients?

With hedge fund now the target of insider trading allegations, the alternative investments industry is again in the eye of a storm: PMs in handcuffs and wiretaps, cash payments in briefcases and 007 code names are tantalizing the public. Ron Resnick, of financial consulting firm CounselWorks, contends there is a smarter way to regulate hedge funds.

Resnick writes that there is a way to address common misconceptions and encourage productive public dialogue about hedge fund practices. The smarter way to address public policy concerns about fraud on investors, conflicts of interests and the risks of hedge funds is the opposite of the S.E.C. philosophy that portfolio managers should separate their personal investing from client investing.

S.E.C. holds the view that it is a conflict if a manager buys or sells for himself what he buys or sells for his clients.

Rather than separating managers’ personal investing from their client investing, the S.E.C. should require all managers to buy and sell precisely what they buy and sell for their clients. Read More » from NYT Dealbook.

Monday, November 9, 2009

Don’t Throw the Baby out with the Bath Water

Financial regulatory reform is poised to emerge in a form that risks being just more of the same, if clear segmentation of oversight duties is not set-out in bright line separation of duties. Says Pat O’Mara, CEO of New York’s Cardinal Compliance Services (, “Instead of more ambiguity there must be a clear road-map for industry professionals to follow, outlining all specific regulatory responsibilities.”

The broker-dealer and managed funds regulatory world should continue to follow an SEC rule making methodology that garners industry consensus (because the honest brokers and managers will always seek a level playing field), and self regulation is effective, as long as rules are rigorously applied and vigorously enforced. Congress should ensure that in its approach to hedge fund advisers, broker-dealers and money-managers, at all levels, they all fall under the SEC’s jurisdiction. From a regulatory standpoint, parsing the securities community based on size or product would only fragment a regulatory system that already suffers from a lack of communication among the existing departmental silos that have set-up, by mandate. SEC enforcement should, if anything, be given more range (i.e., of everything securities related, perhaps even more insurance products) along with a staff and a budget that would make all of the Madoff want-a-be’s cringe and cower at the thought. Few ever successfully challenge an SEC enforcement action. As for honest capital markets professionals, we should all be concerned with the morass of banking reform legislation, seek that it not pervert capital markets legislation, and welcome the leveling-of-the-field-of-play with a beefed-up SEC and FINRA.

Wednesday, November 4, 2009

SEC Registration Bill Advances, But Now What ? Practical Advice on How to Prepare

Following last week's House Committee on Financial Services clearing a bill that would require most alternative investment fund managers to register with the SEC you may wish to read an overview of how and what to do to prepare your Firm for Registration.

In a column late this summer Thomson's BuyoutsNews prodded buyout shops to take a stronger stand against proposed legislation requiring them to register as investments advisers with the SEC. That article was titled "Will Industry Accept SEC Registration Without A Fight?" In it you can read how many firms may be tempted to tap a CFO or other partner as chief compliance officer, rather than hiring a full-time CCO. But that could prove short-sighted, given the complexity of the job, and the fact the SEC tends to stop by for examinations every two to four years. "One of the ways to get into big trouble is to adopt policies and procedures off-the-shelf and not to follow them," cautioned a Partner at Ropes & Gray.

Registering as investment advisers, following the compliance policies and procedures, dealing with regular inspections-all these activities absorb yet more time and energy. These are among the main areas that firms would likely need to change how they do things and you can read below on what and how to do it. Read more.
To see all DRAFTS of the Financial Regulatory Reform now being considered by the House Financial Services Committee click here Click here to write to your Representative about issues relating to the Financial Services Committee.

Sunday, November 1, 2009

SEC may raise RIA threshold to $100M, moving many under state regulation

Some 4,200 advisory firms can expect more oversight and higher costs under legislation that would remove them from SEC oversight and place them under state regulation. Investor Protection Act of 2009, which the House Financial Services Committee is expected to approve this week, contains an amendment by Rep. Barney Frank (photo), that would raise the threshold for SEC registration of investment advisory firms to $100 million, from $25 million.

That would result in state regulators' gaining oversight of about 4,200 of the 11,300firms now registered with the SEC. The act also contains new rules to harmonize regulations between broker-dealers and investment advisers.

Under the amendment, “examinations could happen more frequently and more rigorously” for firms moving to state regulation as well as for larger firms remaining under the SEC. The SEC examines about 9% of its regulated advisory firms annually.

If it is able to concentrate on larger firms, the SEC will have more time to conduct exams, states currently examine advisory firms more frequently than the SEC does. The bill also contains provisions to more than double funding for the SEC, raising the budget to $2.25 billion and authorizing the commission to impose fees on investment advisory firms to cover the cost of inspecting and examining firms for which the agency retains jurisdiction.

For firms moving from SEC to state registration, regulation would likely become more complicated and expensive. Many of those firms would have to register with more than one state.

Currently, SEC-registered firms need not register in states in which they have few clients. State-registered firms with locations in more than one state will find themselves subject to different state requirements concerning custody rules, capital requirements, advisory contracts and privacy regulations.

Although some think it will be more costly to them, some advisers said that they think that state regulators are easier to deal with than the SEC. More at Investment News.

S.E.C.'s Madoff Investigation Exhibits

S.E.C. inspector general, H. David Kotz concluded in his full report that inexperienced and sometimes incompetent staff members had failed to adequately investigate numerous warnings and tips about the enormous Ponzi scheme.

New exhibits consist of 6,157 pages of interviews, letters, e-mail messages, telephone records and other background material gathered during a 10-month investigation of how the commission handled, and mishandled, numerous tips and warnings it received about Madoff over the years. His full report,released last month, found the agency had received six substantive complaints since 1992 — and botched the investigation of every one of them. He found no evidence of any bribery, collusion or deliberate sabotage of those investigations.

Among the exhibits are transcripts or reports on more than 160 other interviews conducted during the extensive internal investigation, including conversations with four former S.E.C. chairmen, a number of former top officials at the agency and dozens of current and former staff members involved in the various botched investigations examined in the original report.

E-mail messages, letters, memoranda, telephone records and other bits of evidence are also included in the Madoff trove were posted on the agency’s Web site

While the exhibits add no new charges to Mr. Kotz’s unofficial indictment of the nation’s top market regulators — the worst documented failure in the 75-year history of the S.E.C. — they do provide a vivid sense of the tensions, confusions and petty squabbles that derailed each failed inquiry.

The paperwork gathered from the agency’s files also tell a tale of unseasoned, poorly managed people who were uncertain about what to do and unwilling to ask for help. In numerous instances, employees would share their doubts about Mr. Madoff in notes or e-mail messages, but then never take steps to press for more information.

In a memo from March 2004, several senior S.E.C. staff members reported that “it seems clear” that Mr. Madoff had “absolute discretion” over the accounts of his clients. Nevertheless, they said, “Bernard Madoff himself has categorically denied being an investment adviser.”

Go to Madoff Exhibits from the S.E.C.
Article from NY Times

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