Manager-of-Managers Will Pay $16.5 Million for Failing to Verify Performance 

A fund manager and adviser agreed to pay $16.5 Million in fines, disgorgement, and interest, for failing to verify performance information provided by a subadviser.  According to the SEC, the respondent advertised actual performance that was instead based on unsubstantiated backtested and hypothetical performance data.  The SEC charges the firm with failing to adopt compliance policies and procedures “for evaluating and monitoring the accuracy of third-party-produced performance information” and failing to maintain sufficient books and records to support performance claims.  The SEC also faults the firm for ignoring red flags including concerns raise by FINRA and a data provider.

OUR TAKE: What compliance procedures must a manager-of-managers implement to ensure performance claims made by third parties?  Should it conduct a forensic review of all underlying performance data to ensure accurate performance reporting?  To satisfy the books and records requirement, must a firm require a data dump of all supporting data?  Does this case raise the bar for managers-of-managers who are not permitted to rely on information provided by third-party managers?