Following adoption of section 206(4)‐7 under the Investment Advisers Act of 1940 and Rule 38a‐1 under the Investment Company Act of 1940 (hereinafter “CCO Rule”), Chief Compliance Officers affiliated with investment advisers, mutual funds, and hedge funds have reason to worry that the U.S. Securities and Exchange Commission (“SEC”) might turn its attention toward their companies. The SEC is funded to take action; its budget for enforcement has increased exponentially in recent years, and the agency’s own statistics show that it has been busy: in fiscal year 2004, the SEC brought 639 enforcement actions, many of which pertained to market‐timing, directed brokerage, and “soft‐dollar” issues. In addition, the SEC recently has signaled that it is conducting mini‐sweeps into whether brokerage commissions on index funds were used improperly for research, and mutual funds affiliated with securities lending agents are being compensated appropriately. hat happens if your company becomes the subject of an SEC investigation? This article will set forth some practical steps a chief compliance officer (“CCO”) should consider in the event that her company receives notice that it is under SEC scrutiny. These steps apply whether the CCO is independent of the company’s legal department, or functions as in‐house counsel.
Journal of Investment Compliance – Emerald Publishing
Published: Jul 1, 2004
Keywords: Financial institutions; Investments; Investment funds; Investors; Investments