Investment advisers becoming more frequent target of SEC enforcement

Agency brought 126 actions against more than 230 adviser or company defendants in 2015, about 15% of the total enforcement cases last year

Mar 11, 2016 @ 2:18 pm

By Mark Schoeff Jr.

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Investment advisers and investment companies are among the most frequent targets of Securities and Exchange Commission enforcement, an agency official said Friday.

The agency brought 126 actions against more than 230 defendants in the investment adviser/company area in 2015, according to Joseph Brenner, chief counsel of the SEC Division of Enforcement. That represents about 15% of the total enforcement cases last year.

“It does give you a sense of how complex, how important that area is,” Mr. Brenner said at an Investment Adviser Association compliance conference in Washington. “That's become a very, very significant part of our case load.”

Other top enforcement areas in 2015 included financial reporting; broker-dealer cases, especially those involving market structure and dark-pool trading; and securities offerings, such as Ponzi and pyramid schemes, unregistered securities and affinity fraud.

The SEC filed about 500 stand-alone cases and 300 follow-on cases last year.

The SEC's economic analysis arm is helping to target “aberrant behavior” to help guide the agency's examinations, according to Mark Flannery, director of the Division of Economic and Risk Analysis.

“In the fund area, we look at people who have inexplicably high returns or inexplicably high operating costs,” Mr. Flannery said at the IAA conference.

The division is honing its ability to find problems in the adviser space. In addition to unusually high returns and expenses, extreme inflows or outflows from a fund could catch its attention.

“We're in early days in trying to identify risk in this sector,” Mr. Flannery told reporters on the sidelines of the conference.

The SEC's economic and risk analysis staff has grown from about 90 to 165 over the last three years, boosted by mandates from Republican lawmakers for the SEC to spend budget increases in those areas.

“Congress has been very kind to us,” Mr. Flannery said.


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