Category Archives: Press Releases

NFA Suspends Commodity Hedge Fund Firm

The NFA suspended the membership of SNC Investments, a firm which ran commodity hedge funds and commodity managed accounts.  The original post can be found here.

For Immediate Release

For more information contact:
Larry Dyekman (312) 781-1372, ldyekman@nfa.futures.org
Karen Wuertz (312) 781-1335, kwuertz@nfa.futures.org

NFA takes emergency enforcement action against SNC Investments, Inc. and its principal, Peter Son

October 31, Chicago – National Futures Association (NFA) announced that it has taken an emergency enforcement action that suspends SNC Investments, Inc. (SNC) and its principal, Peter Son, from NFA membership and associate membership, respectively. SNC is a Futures Commission Merchant, Commodity Pool Operator, Commodity Trading Advisor and former Forex Dealer Member. SNC is located in New York City with a branch office in Pleasanton, California.

The Member Responsibility Action (MRA), effective immediately, is deemed necessary to protect customers because SNC and Son have suddenly ceased operations, Son is reported missing, and there are allegations that millions of dollars in customer funds are also missing. Under the circumstances, NFA is unable to determine if SNC and Son are in compliance with NFA Requirements or if they have misappropriated customer funds.

Additionally, the MRA prohibits SNC and Son from soliciting or accepting any funds from customers, pool participants or investors. SNC and Son are also prohibited from placing trades on behalf of customers and from disbursing or transferring any funds of customers, pool participants or investors from any accounts without prior NFA approval. The MRA will remain in effect until such time SNC and Son have demonstrated to NFA that they are in complete compliance with NFA Requirements. SNC and Son may request a hearing before NFA’s Hearing Committee.

NFA is the premier independent provider of innovative and efficient regulatory programs that safeguard the integrity of the futures markets.

Investment Advisor and Investment Advisor Representative IARD System Fee Waiver

The SEC and NASAA have waived two separate charges for Investment Advisors for the 2009 calendar year.  The first charge being waived is a systems charge for the Investment Advisor to access the IARD system.  This fee used to be $30.  The second charge is the fee to access the IARD system for each investment advisor representative.  This fee used to be $30 as well, which went to the NASAA.  For small investment advisors this amounts to a small savings, however, larger firms with many investment advisor representatives will be pleased they will not have to pay this system fee.

However, fees which go to the individual states are not being waived and these fees are often in the range of $100-$500 for each investment advisory firm, and $30-$125 for each investment advisor representative depending on the state of registration.  For more information please see the press release below or contact your hedge fund attorney or compliance professional.  The full press release can be found here.

SEC, NASAA Announce IARD System Fee Waiver

FOR IMMEDIATE RELEASE
2008-259

Washington, D.C., Oct. 30, 2008 — The Securities and Exchange Commission and the North American Securities Administrators Association (NASAA) today announced they will waive the initial set-up and annual system fees paid by investment adviser firms to maintain the Investment Adviser Registration Depository (IARD) system. Separately, NASAA announced that for next year it will also waive those system fees paid by investment adviser representatives (IARs).

Andrew J. Donohue, Director of the SEC’s Division of Investment Management, said, “We are pleased to be able to continue the fee waiver of initial and annual fees paid by investment advisers through July 31, 2009. We are also pleased that enhancements will continue to be made to this important and useful online adviser registration and public disclosure system, which enables the investing public easily to access information about investment advisers.”

Fred J. Joseph, NASAA President and Colorado Securities Commissioner, said, “The IARD system promotes effective and efficient investor protection through readily accessible disclosure while offering a consistent and streamlined registration process for investment advisers and their representatives. Given the current economic climate, we are pleased that the IARD system’s ongoing success has allowed us to maintain the system fee waivers put in place in 2005 for investment adviser firms and also to fully waive for the first time the system fees paid by investment adviser representatives.”

For next year, NASAA will waive payment of initial and renewal IARD system fees by state-regulated investment adviser firms and investment adviser representatives’ initial and renewal fees. NASAA’s Board of Directors approved the system fee waiver and will continue to monitor the system’s revenues to determine whether future fee adjustments are warranted.

The IARD system is an Internet-based national database sponsored by NASAA and the SEC and operated by FINRA in its role as a vendor. IARD provides a single nationwide database for the collection and dissemination of information about individuals and firms in the investment advisory field and offers investment advisers and representatives a single source for filing state and federal registration and notice filings. The system contains the employment and disciplinary histories of more than 25,000 investment adviser firms and nearly 250,000 individual investment adviser representatives. IARD system fees are used for user and system support and for enhancements to the system.

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Offshore Hedge Fund Law Firms

Generally speaking, offshore hedge funds utilize both domestic and offshore law firms when launching the hedge fund.  In a recent survey, offshore hedge fund law firms were ranked; please see press release below.

Walkers named Top Offshore Law Firm in 2008 Alpha Awards
28-Oct-2008

Underlining its reputation as the offshore law firm of choice in the hedge fund industry, Walkers is pleased to announce that it has been named as ‘Top Offshore Law Firm’ in the 2008 Alpha Awards for hedge fund service providers, with particular praise in the areas of hedge fund expertise and in the regulatory and compliance field.

Based on the votes of more than 1,000 hedge fund firms which manage more than US$1.5 trillion, Alpha Magazine compiled its rankings based on the quality of service the firms received for the 12 months to March 31 2008. Views on service quality were broken down into a number of broad attributes and respondents were also asked to rate the importance of each attribute, which was used to help calculate the overall winner.

“Receiving any award is always welcome but it is particularly gratifying when the results are based upon the views of our clients in the investment management community,” said Jonathan Tonge, managing partner of Walkers’ hedge fund practice, who is based in the Cayman Islands. “Our success can be attributed to the expertise and hard work of all the members of our hedge funds group and clients can be sure of our continued devoted attention and responsiveness at what is such a crucial time for the industry.”

In addition to offshore law, the Alpha Magazine awards also recognised excellence in service to hedge funds among accountants, fund administrators, prime brokers and onshore law firms.  Other winners included Morgan Stanley, Shartsis Friese, Rothstein Kass & Co., and Goldman, Sachs & Co.

The rankings for the 2008 Alpha awards for hedge fund service providers can be viewed at – http://www.iimagazine.com/Rankings/RankingsHeFuTSPRGlobal08.aspx?src=http://www.iimagazinerankings.com/rankingsHeFuTSPRGlobal08/analysts1.asp~no–no__catid–4

The recent establishment by Walkers of a specialist Distressed Funds Group was also noted by Alpha Magazine. Formed earlier this year to assist hedge funds affected by the credit crisis and market downturn, the Distressed Funds Group draws on expertise from Walkers corporate, insolvency and litigation departments in its Cayman, British Virgin Islands and Jersey offices. Amid current market uncertainty, clients have welcomed additional specialist services targeted towards a specific market need.

In its overview of this year’s Alpha Awards, the publication noted the brisk growth that the hedge fund industry has experienced in the Cayman Islands, where the number of hedge funds registered with the Cayman Islands Monetary Authority reached 10,291 as of September 30.  Demonstrating resilience in the face of the global financial crisis, there were a net 254 new hedge funds registered in the Cayman Islands in the third quarter of 2008, taking cancellations into account.

“As has been demonstrated by the recent moves to Cayman by offshore law firms from elsewhere in the region, the Cayman Islands remain the clear jurisdiction of choice for offshore hedge funds. If you want to work in the hedge fund space then you need to be here,” said Mark Lewis, senior investment funds partner at Walkers.

Walkers will host a seminar in New York on November 6 specifically designed to examine issues relating to distressed hedge funds. ‘Fighting the Tape’ will be a unique discussion on protecting and growing a hedge fund business in volatile markets.  Speakers at the event include a number of Walkers hedge fund partners and invited guests, particularly renowned hedge fund manager George Hall, the Founder and President of the Clinton Group Inc.; Yolanda McCoy, Head of the Investments and Securities Division of the Cayman Islands Monetary Authority (CIMA); and Jeffrey Rosensweig, Associate Professor of Finance at Emory University.

A limited number of spaces remain and for more information about the event or to reserve a seat, please contact Walkers’ Marketing Team at communications@walkersglobal.com. The ‘Walkers Fundamentals’ series of ‘Thought Leadership’ events will be developed further over the coming months.

Prime Brokerage Survey Results

The following is a press release regarding the results from a prime brokerage survey.

Alpha Magazine Survey Ranks Merlin Securities as the #1 Prime Broker for Small Hedge Funds in 2008
Merlin Securities Receives Top Honors for Second Year Running

SAN FRANCISCO, Oct 28, 2008 — Merlin Securities, a leading prime brokerage services and technology provider for hedge funds, funds of funds and long-only managers, today announced that Alpha magazine has named it #1 prime broker for hedge funds with less than $1 billion in assets under management. This is the second year that Merlin Securities has received top honors as the “Small Firms’ Favorite” in Alpha’s survey of more than 1,000 hedge fund firms.

“We feel very privileged to be voted by so many funds as the top prime broker for the second year running,” said Aaron Vermut, senior partner and chief operating officer of Merlin Securities. “This award recognizes the hard work of our entire team and our continuing commitment to providing quality customer service and leading-edge technology.”

About Merlin Securities

Merlin Securities is a leading prime brokerage services and technology provider for hedge funds, funds of funds and long-only managers. The firm provides single- and multi-primed hedge fund managers with dynamic performance attribution portfolio analytics and reporting. In January 2008, Sequoia Capital, a leading venture capital firm, invested $20 million in Merlin Securities. The firm has offices in New York and San Francisco and is a member of NASD and SIPC.

In 2007, Global Custodian named Merlin Securities the #1 prime broker in North America, the #1 prime broker for single-strategy funds and the #1 prime broker for funds under $100 million. Merlin was also named the #1 prime broker for funds less than $1 billion by Alpha magazine in their 2007 Hedge Fund Service Provider Survey. In the 2008 Global Custodian survey, Merlin achieved the highest overall scores in the single- and multi-primed brokerage categories.

For more information, please visit www.merlinsecurities.com.

DOL Sues Investment Adviser for Receiving Undisclosed Fees from Hedge Fund

The case below provides a great example of why registered investment advisors and hedge funds need to have competent legal counsel advising them on all aspects and arrangements of their business.  Basically a registered investment advisor (RIA) had a selling arrangement with a hedge fund where the RIA would receive a portion of the performance fees earned by the fund on those assets which the RIA directed to the fund.  The RIA directed ERISA assets and did not disclose the arrangement with the hedge fund.  The DOL is seeking remedial action on many fronts and is asking that the RIA be banned from acting as a fiduciary to ERISA assets in the future.  The SEC has also frozen the hedge fund’s asset.

I am actually shocked by this story.  Not because of what the RIA or the fund did, but because it actually happened.  I would assume that an RIA with over $500 million in assets (including ERISA assets) would have an attorney review all of the transactions which it contemplated.  I am also in disbelief that the hedge fund manager did not run the proposed transaction through its own attorney.  If an attorney had seen this transaction in proposed form, it would not have gone through.  In addition to the potential ERISA issues, there are potential broker-dealer issues for the RIA as it is essentially acting as a broker in this transaction and if the firm is not registered as a broker, there may be more issues the RIA will have to face with the SEC.

This case highlights the importance of having competent legal counsel and discussing all issues and proposed transactions with counsel on a regular basis.  The consequences are real and severe – the fund’s assets are frozen and now both of these firms have sullied names.  The press release can be found here.

Release Date: October 24, 2008
Release Number: 08-1536-SAN
Contact Name: Gloria Della/Richard Manning
Phone Number: 202.693.8664/202.693.4676

U.S. Labor Department sues California investment advisor and executives to recover losses and hidden fees charged to employee benefit plans

San Francisco – The U.S. Department of Labor has sued Zenith Capital LLC of Santa Rosa, California, and its executives for allegedly investing the assets of 13 retirement plan clients in the hedge fund Global Money Management LP while receiving undisclosed incentive fees from the hedge fund’s sponsor and manager.
The lawsuit alleges that Zenith Capital and executives Rick Lane Tasker, Michael Gregory Smith and Martel Jed Cooper violated their fiduciary obligations under the Employee Retirement Income Security Act (ERISA). The defendants allegedly made investment decisions for their ERISA plan clients. From April 1999 to September 2003, the defendants caused the plans to invest in Global Money Management and received undisclosed incentive fees from LF Global Investments LLC, the general partner and manager of Global Money Management.

In 2004, Zenith Capital LLC was a registered investment advisor with 1,214 clients and approximately $538 million in assets under management. In addition to paying Zenith incentive fees not disclosed to the 13 ERISA plan clients, LF Global held an ownership interest in Zenith. The U.S. Securities and Exchange Commission has frozen the remaining assets of Global Money Management and secured the appointment of a receiver.

The Labor Department’s suit seeks a court order requiring the defendants to restore all losses owed to the plans, requiring them to undo any transactions prohibited by law and permanently barring them from serving in a fiduciary or service provider capacity to any employee benefit plan governed by ERISA. The suit was filed in the U.S. District Court for the Northern District of California.

“We will vigorously pursue investment advisors who try to line their own pockets by illegally steering pension investments. Fiduciaries must invest solely in the interests of the workers to whom these funds ultimately belong,” said Bradford P. Campbell, assistant secretary for the Labor Department’s Employee Benefits Security Administration (EBSA).

The suit resulted from an investigation conducted by the San Francisco Regional Office of EBSA as part of EBSA’s Consultant Adviser Project. Employers and workers may contact EBSA’s San Francisco office at 415.625.2481 or toll-free at 866.444.3272 for help with problems relating to private sector pension and health plans. In fiscal year 2007, EBSA achieved monetary results of $1.5 billion related to pension, 401(k), health and other benefits for millions of American workers and their families.

Zenith Capital LLC, Civil Action Number C-08-4854 (EMC)

U.S. Department of Labor news releases are accessible on the Department’s Newsroom page. The information in this news release will be made available in alternate format (large print, Braille, audio tape or disc) from the COAST office upon request. Please specify which news release when placing your request at 202.693.7828 or TTY 202.693.7755. The Labor Department is committed to providing America’s employers and employees with easy access to understandable information on how to comply with its laws and regulations. For more information, please visit the Department’s Compliance Assistance page.

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Please contact us if you have any questions or need to contact a hedge fund attorney.

Hedge Fund Due Diligence Firm Expands

This week we’ve seen a deluge of hedge fund press releases which indicate that the industry which supports hedge funds remains strong a growing.  The press release below provides details on a hedge fund due diligence firm which is expanding its operations.  In the coming months and years hedge fund due diligence is poised to become a central part of the hedge fund investing process.

October 14, 2008

Gillian Scott, CA CFA, Joins Castle Hall Alternatives as Managing Director; Castle Hall Opens Office in Halifax, Nova Scotia

MONTREAL – Castle Hall Alternatives, a leading provider of hedge fund operational due diligence, announced today that Gillian Scott, CA CFA, has joined the firm as Managing Director. She will lead the firm’s new presence in Halifax, Nova Scotia, where Castle Hall joins several leading administrators and other service providers to help establish a growing pool of hedge fund expertise in Canada.

Gillian previously held the position of Group Financial Controller of The Atlantic Philanthropies, a leading international philanthropy with an investment portfolio in excess of $4 billion. Gillian was a key contributor to the design and development of the group’s operational due diligence process, completing due diligence reviews for a significant portion of Atlantic’s portfolio. She was also responsible for Atlantic’s group audit and internal control environment. Prior to joining Atlantic in 2001, Gillian was an audit manager with the Bermuda office of PricewaterhouseCoopers, where she was responsible for a wide range of hedge fund and investment related audits.

Gillian is a member of the Canadian Institute of Chartered Accountants and is also a CFA (chartered financial analyst) charterholder.

Commenting on her new role, Gillian said “in the current markets, hedge fund investors face multiple challenges that, more than ever, involve operational risk. Investors must understand many new issues, including counterparty risks, the impact of FAS 157 and how to deal with funds which impose gates, suspend redemptions or restructure. Castle Hall helps investors enhance their due diligence program and better respond to these new challenges.”

Chris Addy, Castle Hall’s President and CEO, said “we are delighted to welcome Gillian to our firm and expand our presence to Nova Scotia. Castle Hall’s unique due diligence model enables us to provide the objective and fully independent advice that investors need to navigate today’s markets. We are particularly proud to have assembled what is now the industry’s largest and most experienced team dedicated solely to operational due diligence on behalf of the investor community.”

Hedge Fund Administrator Tests Prime Brokerage Waters

There was a previous press release about a hedge fund prime broker expanding its services.  We can see from the press release below that hedge fund adminsitrators are also expanding their service offerings.  I believe the reason for the expansion in the service offerings of these firms indicates a belief that the hedge fund space will continue to grow.  It also indicates that hedge fund service providers are looking to be more diversified – these service providers are looking to become one stop shops for hedge fund managers.

Conifer Securities Launches Prime Brokerage Through J.P. Morgan Chase

NEW YORK, Oct 15, 2008 /PRNewswire via COMTEX/ — Move Comes as Hedge Funds Look for New Financing and Prime Brokerage Options

Conifer Securities, a leading provider of business and operations solutions to asset managers and institutional investors, today announced that it has entered the prime brokerage business. Working with J.P. Morgan’s Broker Dealer business services, Conifer is now building upon its Fund Administration and Outsourced Trade Execution services by offering hedge funds a full-suite of prime brokerage services including financing, securities lending, asset custody and daily account reporting. J.P. Morgan’s capital position, extensive capabilities and innovative approach stand out during the current market volatility.

The ongoing financial turmoil and growing interest in counterparty diversification have created a strong demand for additional, experienced prime brokers to step in and service hedge funds. Many hedge fund managers today want to create relationships with multiple prime brokers who can provide alternate sources of financing as well as premium service. Given its 19-year track record as a top-tier hedge fund service provider, the agreement to clear and custody with J.P. Morgan puts Conifer in a very strong position to provide managers with alternative prime brokerage and financing sources.

Conifer’s move into the prime brokerage business is being spearheaded by Richard (Dick) Del Bello, who has more than 15 years of prime brokerage experience, including seven years as the head of prime brokerage for the Americas at UBS.

“The credit crisis and subsequent market turbulence have transformed our industry as hedge funds shift assets to the most financially stable investment and commercial banks,” said Mr. Del Bello. “At the same time, some of the large prime brokers are squeezing the tails of their client rosters, eliminating hedge fund accounts that aren’t suitable for their business–and that’s where Conifer comes in.”

Jack McDonald, Conifer’s president & CEO, added, “J.P. Morgan’s prime brokerage offering is the perfect complement to Conifer’s core middle and back office business, resulting in our emergence as a leading prime broker to hedge funds. Given our existing relationships with all of the other major prime brokers, we can also service established hedge funds requiring multiple relationships by providing them with centralized reporting and an infrastructure otherwise available only to the largest funds. Conifer has successfully expanded its business through the cyclical market extremes of the last twenty years. This in-depth experience and broad expertise will provide the stability and support our client partners need in growing their business.” McDonald concluded.

In addition to its prime brokerage services, Conifer provides comprehensive middle- and back-office services to its clients including: global fund accounting and administration, trade operations, outsourced trade execution, executive office space, compliance, corporate accounting, consulting services and business infrastructure.

Press Release: Hedge Fund Prime Broker Expands Services

Contrary to the spate of terrible news regarding the financial markets, the hedge fund industry, specifically, the hedge fund service provider industry is poised and ready for continued growth.  The following press release showcases a prime brokerage firm which is actually expanding its operations.

Merlin Securities Expands Client Services Team to Keep Pace with Business Growth

Industry Veteran Michael Tumulty to Lead Client Services in New York David Newman and Walter Paleski Join as Account Executives

SAN FRANSCISCO, Oct 14, 2008 – Merlin Securities, a leading prime brokerage services and technology provider for hedge funds, funds of funds and long-only managers, today announced that it has hired Michael Tumulty, an industry veteran with more than 25 years experience, to head its New York client services team. The firm also hired David Newman and Walter Paleski as account executives in the New York office.

“Merlin is benefitting from the monumental shift taking place in the prime brokerage industry, specifically the movement toward multiple prime brokers and a focus on custodial risk,” said Aaron Vermut, senior partner and chief operating officer of Merlin Securities. “Having experienced account executives in place is critical to maintaining our commitment to outstanding client service. I am delighted to welcome Mike, Walter and Dave to the team.”

Michael Tumulty has more than 25 years of financial services experience, most of which has focused on prime brokerage. Most recently he was a director of financial client management at Merrill Lynch’s prime brokerage, where he worked closely with the firm’s top-tier hedge fund clients. Prior to that, he was with Bear Stearns for 17 years as a director of hedge fund client services. Tumulty holds an M.S. in investment management and a B.S. in business administration.

David Newman is returning to the prime brokerage industry after successfully co-founding and serving as president of Holedigger Studios, an independent film company. Previously, he served as vice president of operations for GH Associates and managed relationships with hedge fund clients at the prime brokerages of Banc of America Securities and ING Furman Selz.

Walter Paleski brings more than 20 years of industry experience and was most recently at CastleRock Asset Management as financial controller, operations manager, and trader. Previously he was a senior account executive for prime brokerage hedge fund clients at ING Furman Selz and, prior to that, Morgan Stanley. Paleski began his career with Shearson Lehman.

Press Release: Hedge Fund White Paper Indicates Growth in Family Office Investments

The press release below discusses a report on investments in hedge funds by single family offices.  The report finds that single family offices are willing to invest in hedge funds and also lays out some of the major concerns about hedge fund investing.  The central issue for single family offices is transparency in the underlying hedge fund.  This indicates that hedge funds are likely to see a rise in the request for due diligence on the fund and management company.

SINGLE FAMILY OFFICES BOLSTER ALTERNATIVE INVESTMENT SECTOR

New Survey from CPA Firm Rothstein Kass Finds Nearly 75% of Single Family Offices Invest in Hedge Funds
Almost 60% Plan to Increase Allocations to Alternative Investments in the Next 12 Months

Roseland, NJ – October 14, 2008 – The alternative investment sector will continue to benefit from increasing asset allocations from Single Family Offices (SFOs), according to “On the Rise,” the latest research report sponsored by CPA firm Rothstein Kass. The white paper, co-sponsored by G Capital highlights the growing relationship between the alternative investment community and SFOs, entities established to serve the needs of individual high-net-worth families. “On the Rise” was co-authored by Russ Alan Prince, a leading authority and counselor on private wealth, and Hannah Shaw Grove, a widely recognized expert on behaviors and finances of high-net-worth individuals. Among notable findings:

  • Almost three-quarters of SFOs currently invest in hedge funds, with nearly 60% of this group planning additional allocations in the coming year
  • SFOs with hedge fund allocations hold an average of 3.2 hedge funds or fund-of funds in the portfolio
  • Nearly 70% of SFOs with hedge fund allocations report that these investments have met or exceeded performance expectations over the past 12 months
  • Over 80% of respondents reported 24 month performance was ‘as expected’ or better
  • More than 70% of SFOs with hedge fund allocations report “lack of transparency” as a key concern. Other concerns sited include lock-up periods (60%), style drift (55%) and fraud (37%)

“Single Family Offices are trusted and highly valued by high-net-worth families they serve because of the individualized attention and customized solutions they provide to holistic wealth management. However, our research suggests that persistent market volatility has placed added importance on the asset allocation function. As SFOs consider an ever-expanding range of investment options, they are increasingly turning to the alternative investment sector and its proven ability to deliver superior returns independent of underlying market conditions,” said Rick Flynn, a Principal in Rothstein Kass’ Family Office Group. “Moreover, our findings suggest that performance continues to drive alternative investment allocations. Nearly 70% of those polled said that performance over the last 12 months has been ‘as expected’ or ‘better than expected.’”

The “On the Rise” survey was based on telephone interviews with 146 SFOs and was concluded in August 2008. Investable assets ranged from $312.2 million to $1.3 billion, with a median of roughly $500 million. Just under 60% of the firms polled are based in the Americas, with the balance operating in Europe (21%) and Asia (20%). Additional results were generated from only those entities with reported allocations to the alternative investment sector. For the purposes of this research, SFOs are defined as “created exclusively for or by a single exceptionally wealthy family to provide control, negotiating leverage, and a defense for family members.”

“’On the Rise’ details the latest evidence of the growing interrelation between SFOs and the alternative investment community. While high-net-worth individuals generally recognize advantages of hedge fund investing, they are frequently confounded by the growing roster of products and services available. SFOs have had great success in bridging this knowledge gap,” said Peter Gerhard, Chief Executive Officer of G Capital Management LLC. “Still, lingering challenges face this blossoming relationship. Both transparency (73%) and style drift (55%) rated as key concerns among respondents. It seems that although high-net-worth families are comfortable involving SFOs in the asset allocation process, they themselves retain a level of involvement. Investors need to feel confident that the funds that have been selected are not only good choices in the moment, but reflect overarching and longer-term investment objectives.”

About Rothstein Kass:

Rothstein Kass is a premier financial services firm, recognized nationally as a top service provider to the alternative investment industry. The Firm provides audit, tax, accounting and consulting services to hedge funds, fund of funds, private equity funds, brokerdealers and registered investment advisors. Rothstein Kass is recognized nationally as a top service provider to the industry through its Financial Services Group. The Financial Services Group consults on a wide range of organization, operational and regulatory issues. The Firm also advises on fund structure, both inside and outside the US, compliance and financial reporting, as well as tax issues from a federal, state, local and international compliance perspective. Rothstein Kass has offices in New York, New Jersey, California, Colorado, Texas and the Cayman Islands. www.rkco.com

The Rothstein Kass Family Office Group offers a wide range of financial, wealth planning and lifestyle management services to family offices and high-net-worth individuals, including family members, business owners and members of the financial services, entertainment and sports industries. Composed of seasoned financial professionals and certified public accountants, the Rothstein Kass Family Office Group applies proven expertise with the utmost discretion and attention.

About G Capital Management LLC

By leveraging state-of-the-art capital markets expertise and select advanced planning concepts, G Capital has raised the bar for the next generation of family offices. In addition to the highly effective and sophisticated solutions its family members require, the organization’s structure and capabilities create an efficient, scalable and profitable operating environment that can be readily adapted to capture new businesses opportunities.

About the Authors:

Russ Alan Prince is the world’s leading authority on private wealth, the author of 40 books on the topic, and a highly-sought counselor to families with significant global resources, and their advisors. He is co-author of Fortune’s Fortress: A Primer on Wealth Preservation for Hedge Fund Professionals.
www.RussAlanPrince.com

Hannah Shaw Grove is a widely recognized author, columnist, speaker and an expert on the mindset, behaviors, concerns, preferences and finances of high-net-worth individuals. She is co-author of Inside the Family Office: Managing the Fortunes of the Exceptionally Wealthy.
www.HSGrove.com

SEC ends CSE program for investment banks

Last week Goldman and Merril announced that they were going to convert to bank holding companies.  A good article on  the conversion, including questions and answers, can be found here. An interesting consequence of the change is that the SEC’s Consolidated Supervised Entities (CSE) program is no longer necessary.

The CSE was a unique program where the SEC would supervise the very large investment banking firms from the inside. While the program was voluntary, it was designed to identify potential issues in the devolpmental stage.  However, because the SEC really had no authority to recieve certain reports from the investment banks, the program could only do so much and as we’ve seen, the program failed to protect against the meltdown of both Bear and Lehman.

Chairman Cox will definately take some heat for what the CSE program did not accomplish (see this article), however, it is not presently clear whether he deserves the blame.  As his statement below indicates, the SEC had no explicit governmental oversignt of the major investment banks which would allow them to really act as a regulator for these entities.   What is scary about this is that, if congress listens to Cox, there may be a rush toward over-regulation – Cox is already calling for the regulation of the currently unregulated CDS market. If there is more regulation in the future it is unclear what governmental agency will be in charge of such regulation as the SEC is already overburdened and underfunded.

The statement by Cox below can be found here.


Chairman Cox Announces End of Consolidated Supervised Entities Program
FOR IMMEDIATE RELEASE
2008-230

Washington, D.C., Sept. 26, 2008 — Securities and Exchange Commission Chairman Christopher Cox today announced a decision by the Division of Trading and Markets to end the Consolidated Supervised Entities (CSE) program, created in 2004 as a way for global investment bank conglomerates that lack a supervisor under law to voluntarily submit to regulation. Chairman Cox also described the agency’s plans for enhancing SEC oversight of the broker-dealer subsidiaries of bank holding companies regulated by the Federal Reserve, based on the recent Memorandum of Understanding (MOU) between the SEC and the Fed.

Chairman Cox made the following statement:

The last six months have made it abundantly clear that voluntary regulation does not work. When Congress passed the Gramm-Leach-Bliley Act, it created a significant regulatory gap by failing to give to the SEC or any agency the authority to regulate large investment bank holding companies, like Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers, and Bear Stearns.

Because of the lack of explicit statutory authority for the Commission to require these investment bank holding companies to report their capital, maintain liquidity, or submit to leverage requirements, the Commission in 2004 created a voluntary program, the Consolidated Supervised Entities program, in an effort to fill this regulatory gap.

As I have reported to the Congress multiple times in recent months, the CSE program was fundamentally flawed from the beginning, because investment banks could opt in or out of supervision voluntarily. The fact that investment bank holding companies could withdraw from this voluntary supervision at their discretion diminished the perceived mandate of the CSE program, and weakened its effectiveness.

The Inspector General of the SEC today released a report on the CSE program’s supervision of Bear Stearns, and that report validates and echoes the concerns I have expressed to Congress. The report’s major findings are ultimately derivative of the lack of specific legal authority for the SEC or any other agency to act as the regulator of these large investment bank holding companies.

With each of the major investment banks that had been part of the CSE program being reconstituted within a bank holding company, they will all be subject to statutory supervision by the Federal Reserve. Under the Bank Holding Company Act, the Federal Reserve has robust statutory authority to impose and enforce supervisory requirements on those entities. Thus, there is not currently a regulatory gap in this area.

The CSE program within the Division of Trading and Markets will now be ending.

Under the Memorandum of Understanding between the SEC and the Federal Reserve that was executed in July of this year, we will continue to work closely with the Fed, but focused even more clearly on our statutory obligation to regulate the broker-dealer subsidiaries of the banking conglomerates. The information from the bank holding company level that the SEC will continue to receive under the MOU will strengthen our ability to protect the customers of the broker-dealers and the integrity of the broker-dealer firms.

The Inspector General’s office also made 26 specific recommendations to improve the CSE program, which are comprehensive and worthy of support. Although the CSE program is ending, we will look closely at the applicability of those recommendations to other areas of the Commission’s work and move to aggressively implement them.

As we learned from the CSE experience, it is critical that Congress ensure there are no similar major gaps in our regulatory framework. Unfortunately, as I reported to Congress this week, a massive hole remains: the approximately $60 trillion credit default swap (CDS) market, which is regulated by no agency of government. Neither the SEC nor any regulator has authority even to require minimum disclosure. I urge Congress to take swift action to address this.

Finally, I would like to commend the extraordinary efforts of the SEC’s diligent staff, who for so many months have been working around the clock in the current market turmoil. Their dedication and commitment in behalf of investors and the American people are unequaled.

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