Alert August 05, 2008

SEC Staff Issues Second ComplianceAlert Summarizing Examination Findings

The staff of the SEC’s Office of Compliance Inspections and Examinations (“OCIE), has issued a second ComplianceAlert, the first being issued in June 2007, that summarizes select areas that SEC examiners have recently reviewed during examinations.  As in the previous year, the ComplianceAlert also provides perspective on industry practice in certain areas without commenting on whether the practices are necessary to meet applicable legal requirements in any instance.   The specific areas covered in the ComplianceAlert regarding investment advisers/mutual funds were (a) personal trading by adviser personnel, including an extensive list of practices thought to be effective, (b) proxy voting and use of proxy voting services, (c) valuation and liquidity issues for high yield municipal bond funds and (d) soft dollar practices, including information on a range of practices observed.   The broker-dealer topics were (1) “free lunch” sales seminars, (2) valuation and collateral management processes, (3) broker-dealer subsidiaries of insurance companies, (4) supervision of registered representatives designated as “solicitors” for an investment adviser, (5) recommendations to finance securities purchases through mortgage financing and (6) supervisory and compliance controls under an Office of Supervisory Jurisdiction structure.  The ComplianceAlert topic also discussed transfer agent practices in fulfilling their obligation to search for lost securityholders.