If your firm has never been examined by the Securities and Exchange Commission (“SEC”), your firm may now be shining a little brighter on the SEC’s radar screen.
SEC Exam Focus Turns To Those Who Have Never Been Examined
Implications for private fund managers
If your firm has never been examined by the Securities and Exchange Commission (“SEC”), your firm may now be shining a little brighter on the SEC’s radar screen.
The Associate Regional Director of Examinations in the SEC New York Regional Office, Mr. Norm Champ, speaking recently at the 2010 NSCP East Coast Regional Membership Meeting, stated that his office would be sending a scaled-down document request list to a number of advisers who have not been previously examined by the SEC.
The SEC’s Chicago office conducted a similar document request campaign in April. While these request letters are vastly scaled-down compared to the standard SEC document request letter, we believe this sort of “pre-screening” by the SEC will become commonplace.
These recent request letters offer an important precursor for unregistered managers of private funds. Once regulations are passed requiring certain hedge fund managers to register, the SEC’s resources will presumably be even more strained. Even if a large number of current advisers deregister with the SEC and register with their state regulator due to a potential higher asset thresholds required for SEC registration ($100 million proposed versus the current $25 million), the SEC’s resources will still be limited.
We believe the SEC will continue to approach exams in this fashion by requesting information from several registrants on a limited scope basis as opposed to conducting as many full scope onsite exams.
Based on the Chicago letter and recent SEC speeches, advisers’ promotional activities will continue to be a key concern for the SEC.
All unregistered private funds should read the Chicago letter (and New York request when available) carefully as they consider registration and develop a compliance program in accordance with Section 206(4)-7 of the Advisers Act.
