In remarks at SIFMA's 2015 Anti-Money Laundering & Financial Crimes Conference, Andrew Ceresney, Director of the SEC’s Division of Enforcement, discussed the importance of AML compliance and its integration into a firm’s overall compliance program, the extent to which Suspicious Activity Reports (SARs) are crucial to various phases of Division examination and enforcement activity, and concerns about whether broker-dealer firms are meeting their SAR filing obligations. Mr. Ceresney described a Division initiative capitalizing on the ability of its Bank Secrecy Act (BSA) Review Group to analyze filings by industry members to identify firms that do not file any SARs for extended periods of time, that routinely file SARs long after the transactions being reported, provide little or no detail in the narratives of their SARs, or provide brokerage services to persons or entities frequently identified in SARs filed by other firms. This initiative, undertaken by the Division’s Broker-Dealer Task Force, has resulted in examinations and investigations potentially focused on standalone BSA violations which he expects to result in enforcement action where warranted in an effort to send a clear message to the broker-dealer community about BSA compliance. In this regard, Mr. Ceresney noted the Division’s recent Oppenheimer and Wedbush settlements with respect to BSA matters where, in a departure from “long-standing no-admit, no-deny settlement protocols,” the SEC obtained admissions of violations by the respondents. He also called attention to the $20 million penalty in the Oppenheimer settlement, the largest ever against a broker-dealer for AML failures, and the joint action by the Division and FinCEN that led to the settlement.
In remarks to the IA Watch 17th Annual IA Compliance Conference, Julie M. Riewe, Co-Chief of the SEC Enforcement Division’s Asset Management Unit (AMU) reviewed areas of focus for the AMU in 2015. Ms. Riewe highlighted a number of focus areas for registered investment companies including valuation and board approval of advisory and other fee arrangements. She identified fund distribution as an area of particular concern, “including whether advisers are causing funds to violate Rule 12b-1 by using fund assets to make distribution payments to intermediaries outside of the funds’ Rule 12b-1 plan, whether funds’ boards are aware of such payments, and how such payments are disclosed to shareholders.” For hedge funds, Ms. Riewe reported that the AMU anticipates enforcement involving undisclosed fees, undisclosed conflicts (including related-party transactions) and valuation issues, “including use of friendly broker marks.” She also stated that the Division would continue the Aberrational Performance Inquiry using proprietary risk analytics to identify hedge funds whose returns may suggest improprieties. For private equity funds, Ms. Riewe predicted that the Division would pursue more undisclosed and misallocated fee and expense proceedings like the 2014 Lincolnshire Management settlement.
Goodwin Procter’s Capital Markets Practice has prepared a Client Alert that reviews the SEC’s proposal to require new hedging policy disclosure in proxy and information statements for the election of directors and analyzes the proposal in the context of existing hedging policy disclosure practices and requirements.