SEC Issues “ComplianceAlert Letter” Citing Common Weaknesses and Deficiencies of Registered Firms

The Securities and Exchange Commission has issued a staff letter reporting on the “common weaknesses and deficiencies” shared by SEC-registered companies. The findings were based on examinations given to the firms.

The “ComplianceAlert Letter” is intended to provide key information, encourage compliance officer to address these issues, and foster “robust compliance” within the industry. The letter, the second one sent in as many years by the SEC, is sectioned into distinct areas focusing on broker-dealers, investment advisers/mutual funds, and transfer agents.

Among the deficiencies:

Failure to comply with procedures and polices
Questionable personal trading practices
• Proxy service provider issues • Proxy voting • Valuation and liquidity issues • “Free lunch” seminars
Examiners recently finished a review of a number of big broker-dealers to evaluate their “valuation and collateral management practices” and how these impact subprime mortgage-related products. The SEC examiners noted that it had become increasingly difficult for firms to confirm inventory valuations because of insufficient market liquidity.

Issues of concern included:

• Inadequate staff and supervisory procedures • Insufficient documentation standards
• Pricing inconsistencies
• Lack of margin call processes
The agency also expressed concern that transfer agents may be engaged in a conflict of interest because they receive a partial search fee related to the search process for “lost” security holders and using third-party search companies.

Related Web Resources:

Read the SEC ComplianceAlert, July 2008
SEC Compliance Alert Warns Investment Advisers on Ethics,
Contact the stockbroker fraud law firm of Shepherd Smith Edwards & Kantas LTD LLP today.

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