Finding A Way.

SEC Using Technology to Crack Down on Registered Investment Advisers

investment advisor complianceFederal and state securities regulators are increasingly using technology to pursue enforcement actions against investment advisers. In fact, the Securities and Exchange Commission expects to bring an increasing number of enforcement actions against advisers in the coming year, by using computer systems programmed to detect fraud, Investment News reports.

The SEC is utilizing advanced data analysis to mine public and private advertising, sales, registration, and other documents for what its investigators consider warning signs of deception.

“The whole division is doing a lot more quantitative analysis to identify transactions or practices that have red-flag warning signs that would cause us to take a closer look,” said Robert Khuzami, the SEC’s enforcement director. “The technologies can help us identify activities before they have hatched into full-blown frauds.”

As we discussed in a previous blog post, the SEC is taking a closer look at the registration documents, or Form ADVs, of registered investment advisers. Technology is one tool used to identify high-risk investment advisers.

Data mining and other high-tech tools are also used to analyze mutual funds and hedge funds. For instance, investigators analyze databases that track performance looking for performance data inconsistent with the fund’s investment strategy or compared with benchmarks. Any inconsistencies are further investigated.

In addition to the SEC, state regulators are also turning to high-tech analytics.

“Particularly with states that have a large investment adviser population, they can’t hit them all, so identifying the ones who should rise to the top as far as scrutiny is crucial,” said Colleen Keefe, enforcement manager of the Kentucky Division of Securities and a member of the enforcement section at the North American Securities Administrators Association Inc.

The state and SEC also routinely share data, which is expected to increase when many midsize advisers convert to state registration in the coming year.

How We Can Help Ensure Compliance

Of course, this post provides only a brief overview of the compliance issues facing advisers that manage private equity and hedge funds. Therefore, you should consult with experienced counsel to make sure your activities don’t raise any red flags with the SEC.

Eckerle Law offers a highest-quality and cost-effective alternative to the traditional law firm model for a wide variety of transactional and regulatory matters serving all your business law needs. Our experienced attorneys also provide a full range of compliance services for investment advisers, offering compliance tools that are tailored to fit the ever changing regulatory landscape as well as your business needs.

If your company would like to strengthen its business practices, please contact us today so we can leverage our experience to create real-life business and legal solutions to help your business thrive.