SEC Describes Risk Characteristics for Sweep Exams
As part of its post-Madoff reforms, the SEC will conduct “risk-based” examinations of firms that “present certain risk characteristics.” These risks include assets held at an affiliate, hedge funds with smooth or outlier returns, firms that utilize unknown auditors, and firms that sell an affiliate-sponsored hedge fund. Another reform includes paying whistleblowers rewards collected from wrongdoers. The SEC also intends to expand comprehensive entity exams when firms are dually registered.
OUR TAKE: Given the SEC’s new enforcement attitude, every firm should seriously consider the structure of its operating environment and whether it looks like a high risk to the SEC’s Enforcement Division.