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Wednesday, March 18, 2015

What's On the Radar of the SEC's Top Cop?

Reported by Neil Anderson, Managing Editor

Performance evaluation and performance advertising are just two of the mutual fund industry issues on the radars of the Securities and Exchange Commission's top cop.

Speaking this morning at the Investment Company Institute's (ICI's) 2015 Mutual Funds and Investment Management Conference at the JW Marriott Desert Springs in Palm Desert, California, SEC enforcement division director Andrew Ceresney laid out his priorities for this year when it comes to "registered investment companies" (i.e. mutual funds). Ceresney spoke on a panel, "OCIE and Enforcement: A Discussion of Roles and Responsibilities, Priorities, and Coming Attractions". Michael Downer of Capital Group moderated the panel, which also included SEC national examination program director Drew Bowden and Wilmer Cutler Pickering Hale and Dorr partner (and SEC alumnus) Randall Lee.

Ceresney cited the ongoing F-Squared investigation as an example of his division's interest in performance evaluation and advertising issues. Other issues that he said his team is digging into include: "funds deviating from their investment guidelines or pursuing undisclosed strategies"; fund governance issues under section 15-c of the Investment Adviser Act of 1940; and the intermediary distribution payment issues which have been a hot topic throughout this conference.

Ceresney and Bowden both dismissed industry fears about possible SEC "shadow regulation" through exams or enforcement, a fear already raised at this conference.

"We do not intend to do rule-making by enforcement," Ceresney said.

Ceresney did defend the "broken windows" enforcement initiative, trumpeted by SEC Chair Mary Jo White and styled after the 1990s NYPD effort to go after "quality of life" violations in an effort to create what Lee describes as "a more law-abiding environment in general." His division targets specific areas and then goes after many potential violators at once. And he sees a "subsidiary benefit" in keeping the industry guessing as to what broken windows the division will be looking into next.

"It potentially causes people to think twice about violations because they don't know what the area we'll focus on might be," Ceresney said. 

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