Philadelphia partner Mary Hansen and New York partner Kay Gordon were quoted in an Institutional Investor article titled, “New IM Enforcement Chiefs Scope Trade Allocations.”
The article discusses how the new heads of the Securities and Exchange Commission’s asset management enforcement unit are leading a hunt for potential violations stemming from investment advisers’ allocations of trades and investment opportunities or cherry-picking, as it is often referred to.
Cherry-picking is a perennial issue for enforcement, but the asset management unit has only recently undertaken a formal initiative to combat it.
Mary commented, “The commission uses initiatives when it has reason to believe there is widespread misconduct happening. It is a way for the Commission to identify areas where it believes it is likely to find more than one possible case to bring while sending a message to the industry.”
Kay commented, “When determining whether these policies are adequate, examiners will be concerned about whether there is a possibility of potentially more profitable trades being allocated to accounts with higher performance fees, whether policies sufficiently address the resulting conflicts of interest and whether such conflicts are sufficiently disclosed.”
Kay also emphasized the importance of documentation, particularly in cases where there are “material deviations from the stated policy.” Mary continued further, “in instances where trades are moved between accounts, you want to be particularly careful and maybe document them in preparation of one day having to explain them to examiners.”
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