SEC Priorities


The U.S. Securities and Exchange Commission has laid out its priorities for 2013, and insider trading remains at the top of its list.  Similarly, fraud detection remains a high priority for its examination staff.

In late February, the SEC holds its annual conference in which SEC Commissioners and senior leadership at the agency set forth priorities and objectives for the coming year.  Called “SEC Speaks,” the event provides an overview of SEC priorities for the coming year.

According to the Corporate Law Report, insider trading remains a top SEC agenda.  Sanjay Wadhwa, the senior associate director of Enforcement in the SEC’s New York office, stated that insider trading is still a high-priority area.  Since the Raj Rajaratnam prosecution, the SEC has brought 175 enforcement actions alleging insider trading against 435 defendants involving illicit profits in the neighborhood of $900 million.  Wadhwa noted that hedge fund insider trading will continue to take up much of the SEC’s attention as the Galleon, and related expert network investigations, have revealed a “treasure trove of information.”

Citing the SEC’s recent emergency action asset freeze of a Swiss Goldman Sachs account in which unknown traders are suspected of insider trading in connection with the Heinz merger announcement, Wadhwa said that the SEC will continue to aggressively litigate actions in which suspicious trading is observed in offshore accounts and request asset freezes to preserve the status quo while the SEC investigates.

David Bergers, the acting deputy director of Enforcement, noted that the SEC utilizes a forensic lab that mines data to detect “outliers” in trading activity for potential investigation.   Miami Regional Director Eric Bustillo commented that in the past year, a number of regulated entities disclosed securities law violations to the SEC and then fully cooperated with the SEC’s own investigation.  These were significant factors that SEC staff took into account when recommending that the SEC enter into non-prosecution or deferred prosecution agreements, rather than commencing an enforcement action.  (Source: Perkins Coie, published in JDSupra LawNews)

Another priority is Foreign Corrupt Practices Act violations.  Kara Brockmeyer, chief of the Enforcement Division’s FCPA specialized unit, noted that compliance programs are not ‘one size fits all.’  A compliance program should be designed to minimize risks specific to the company’s business and should evolve over time.

Separately, the SEC’s Office of Compliance Inspections and Examinations published its priorities for 2013.  Not surprisingly, fraud detection is at the top of the OCIE’s list.  SEC examiners are trained to refer questionable activities they uncover to the SEC’s Enforcement Division.  Conflicts of interest were also cited as an important area for examination.

The OCIE continues to place a high priority on examining new registrants, the majority of which are hedge funds or private equity funds.  Since early 2012, approximately 2,000 investment advisers have registered with the SEC for the first time. The vast majority of these new registrants are advisers to hedge funds and private equity funds that have never been registered, regulated, or examined by the SEC.

The SEC is trying to examine as many of the new registrants as possible.  It is also using its analytic tools to prioritize examinations of hedge funds “where the staff’s analytics indicate higher risks to investors relative to the rest of the registrant population, or there are indicia of fraud or other serious wrongdoing.”

Based on the SEC’s priorities for 2013, it is safe to assume that scrutiny of inside information risk will continue to be a priority for investment advisors generally, and hedge funds specifically.


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