SEC Inspection Notes

Below is a short article on how Madoff avoided detection for so long:

A newly-released transcript of a phone call between Bernard Madoff and a feeder hedge fund offers new details of how the arch-fraudster escaped detection for so long.

“You know, you don’t have to be too brilliant with these guys because you don’t have to be,” Madoff told the FFG employee, warning him that, “obviously, first of all, this call never took place.”

“You’re not supposed to have that knowledge and, you know, you wind up saying something which is either wrong, or, you know, it’s just not something you have to do.” source

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Tags: Madoff detection, SEC Inspections, What to expect in a SEC inspection, SEC investigations, past sec investigations, process of an SEC investigation, hedge fund, hedge funds

SEC Investigations

SEC Investigations and Probes

Unfortunately it appears as if the SEC has found enough evidence and felt enough political pressure to launch over 150 investigations and 50 additional probes into areas related to hedge funds. If it helps clean out the bad lemons that is great, but many times any type of non-traditional fund is now labeled a hedge fund and the black marks quickly add up in the mainstream media and in the eyes of the public in general. Here is an excerpt on an article on this topic:

U.S. securities regulators have about 150 active hedge fund investigations and more than 50 probes involving credit default swaps and other derivatives, Securities and Exchange Commission Chairman Mary Schapiro said on Monday.

The SEC also has about two dozen active municipal securities investigations, possibly involving arbitrage-driven fraud, public corruption and price transparency, Schapiro told a conference of business journalists in Denver.

Schapiro, who has made enforcement one of her top priorities since taking the helm late in January, said the hedge fund investigations include possible Ponzi schemes, where early investors are paid with money from newer investors, misappropriations and performance smoothing. source

For more information on the SEC, regulations and compliance please see the Hedge Fund Regulation Corner | Compliance & Law Notes.

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SEC Investigations

SEC Investigations of Hedge Funds

Alex Akesson just sent me a note about a change in SEC investigation procedures for the next few years. In the future the SEC will be taking a number of steps to prevent further cases of fraud within the investment industry. One of these steps will be verifying directly with investors that they are receiving the same marketing materials and monthly statements that are being shown to SEC officials during investigations. Here is an excerpt on this article by Alex:
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At the MFA Legal, Compliance and Operations Seminar in New York last week, SEC staff described its examination and enforcement priorities for the foreseeable future with respect to hedge funds and investment advisers.

According to a letter obtained by HedgeCo, the SEC staff said that as part of their examination of hedge funds and investment advisers, the SEC intends to contact investors, verifying that the hedge fund/investment manager is providing the same statement information to both the client and SEC staff. source

Read about cases of hedge fund fraud and ponzi schemes as well as notes on hedge fund regulation and compliance here: Hedge Fund Regulation Corner.

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