Investment advisers and brokers can expect greater scrutiny for small
infractions, according to interpretations of a speech recently given by the
Chairwoman of the Securities and Exchange Commission. During a keynote speech before the Securities
Enforcement Forum 2013, Mary Jo White said, “retail investors, in particular,
need to be protected from unscrupulous advisers and brokers, whatever their
size and the size of the violation that victimizes the investor.” Securities insiders believe this comment
signals a new focus by the SEC on minor transgressions by advisers and brokers
that may portend more serious violations.
An article appearing
in the publication InvestmentNews quotes several securities industry
participants who believe this reflects a new direction for the agency and a
commitment to enforcement in the realm of asset management. Small violations for advisers may result in
further investigation for the existence of more significant problems, such as
misleading descriptions of investment performance and philosophy, improper fee
disclosures and inaccurate registration information. As for brokers, identification of minor
violations may spur an examination looking for net-capital violations or
selling away. According to former SEC
litigation attorneys quoted in the article, advisers and brokers should now
consider a deficiency letter as a possible blueprint for follow-up actions by
enforcement.
One former enforcement official expressed his belief that
a failure to follow appropriate supervisory and suitability procedures may lead
to SEC enforcement action. Another predicts
that the agency’s enforcement staff will begin initiating cases against
advisers and brokers that were previously handled as regulatory matters. Overall, the SEC appears to be continuing its
efforts to develop new responses to often undetected frauds that continue to
threaten the financial security of retail investors.
