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Rating:Pru Wins SEC's Enforcement Honcho Not Rated 0.0 Email Routing List Email & Route  Print Print
Friday, May 10, 2013

Pru Wins SEC's Enforcement Honcho

News summary by MFWire's editors

After 12-years of fighting the good fight, it's time for a cash out.

Bruce Karpati, former head of the asset management unit within the SEC's enforcement division, is going into the private sector to serve as chief compliance officer for Prudential's registered advisor arm and lead compliance for its mutual funds, according to Reuters.

According to the newswire, asset management unit is one of the SEC's specialized enforcement units, and focuses on investment advisors and private funds. As head of the unit, Karpati led the SEC's efforts to examine hedge fund performance data to uncover investment fraud, Reuters reports.

Here is the press release from the SEC.
Company Press FOR IMMEDIATE RELEASE                                                                              2013-85  


  Washington D.C., May 9, 2013 – The Securities and Exchange Commission today announced that Bruce Karpati, chief of the Enforcement Division’s Asset Management Unit, will be leaving the agency for the private sector after more than a dozen years of federal service.

    Mr. Karpati has served at the helm of the Asset Management Unit since its inception in January 2010, overseeing a staff of more than 75 attorneys, industry experts, and other professionals responsible for conducting investigations into investment advisers, investment companies, and private funds.

    Mr. Karpati and several colleagues from the Asset Management Unit and other offices received the SEC Chairman’s Award for Excellence in 2012 for their work on the Aberrational Performance Inquiry, which proactively uses performance data to uncover various types of investment fraud by hedge fund managers.

    “Beyond all the significant enforcement actions, Bruce has been a pioneer in the use of complex data analysis to detect securities fraud and a pivotal figure in the formation of specialty units within the Enforcement Division,” said George S. Canellos, Co-Director of the SEC’s Division of Enforcement.  “His vision and dedication have tremendously benefited the Asset Management Unit and enforcement staff around the country.”

    Mr. Karpati said, “I have been privileged to work with such talented and dedicated staff in the Enforcement Division and across the SEC.  I am particularly proud of the accomplishments of my colleagues in the Asset Management Unit, who have worked collaboratively on a nationwide basis to bring expertise to bear and proactively combat fraud in the asset management industry.”

    During Mr. Karpati’s tenure as chief of the unit, he has overseen investigations of investment advisers for various forms of misconduct involving valuation, performance, conflicts of interest, insider trading, manipulation, derivatives, fund governance, the 15(c) process, disclosure, and compliance and controls. 

    Mr. Karpati has spearheaded several risk-based initiatives to ferret out misconduct by investment advisers, including the Aberrational Performance Inquiry, Fund Fee Initiative, Revenue Sharing Initiative, and Compliance Program Initiative that specifically focuses on registered investment advisers who repeatedly fail to adopt or implement effective compliance programs. 

    Among the unit’s enforcement actions brought under Mr. Karpati’s leadership:

  • SEC charged a major quantitative investment adviser for misleading investors about the impact of a software error.
  • SEC charged a former $1 billion hedge fund advisory firm and two executives with scheming to overvalue assets under management and exaggerate the reported returns of the hedge funds they managed.
  • SEC charged a New York-based hedge fund manager and his firm with misappropriating client assets and secretly granting favorable redemption and liquidity rights to certain strategically important investors at the expense of other investors.
  • SEC charged a hedge fund adviser and separately other hedge fund managers in cases where they misrepresented they had “skin in the game” when in fact they were not personally investing their money in the funds side-by-side with investors.
  • SEC charged a Bay Area hedge fund manager with concealing investment proceeds in a side pocket to hide profits owed investors, and in a separate case chargedGeorgia-based hedge fund managers with overvaluing illiquid assets in a side pocket so they could extract excessive management fees based on those asset values.
  • SEC charged multiple hedge fund managers with fraud in an inquiry targeting suspicious investment returns.
  • SEC charged a Malaysia-based investment adviser and a Wall Street firm involved in an illegal mutual fund fee arrangement that repeatedly charged a fund and its investors for advisory services they weren’t actually receiving from a third party.
  • SEC charged a Scotland-based fund management group for fraudulently using one of its U.S. fund clients to rescue another client, a China-focused hedge fund struggling in the midst of the global financial crisis.
  • SEC charged two New York-based private equity fund advisers with misleading investors about the valuation policies and performance of a private equity fund they managed.
  • SEC charged the gatekeepers of two mutual fund trusts for inaccurate disclosures about decisions made on behalf of shareholders.
      Mr. Karpati was instrumental in establishing the Asset Management Unit, formulating its strategic and operating plans, setting unit priorities, hiring industry experts, and building the unit’s infrastructure.  A hallmark of Mr. Karpati’s tenure was very close coordination with other SEC divisions and offices such as the National Exam Program, the Division of Investment Management, and the Division of Risk, Strategy and Financial Innovation.  These collaborations resulted in examination sweeps, rulemakings, and more effective detection of emerging risks.

        Mr. Karpati, 43, joined the SEC’s New York Regional Office as an enforcement staff attorney in 2000.  He was promoted to branch chief in 2002 and assistant regional director in 2005.  In 2007, he founded the SEC’s Hedge Fund Working Group, a cross-office initiative to combat securities fraud in the hedge fund space.  Prior to his arrival at the SEC, Mr. Karpati spent four years in private practice at a large national law firm. 

        Mr. Karpati graduated from Tufts University and the University at Buffalo Law School.

    Edited by: Tommy Fernandez

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