In my newsletter, I am writing about an advisor who hosted multiple SEC examiners in his office for three weeks. Among the more serious infractions they discovered: His firm had contributed money to a client's favorite charity. Yet the firm's disclosure documents made no mention of the fact that the firm does not anticipate contributing an equal amount to every client's favorite charity.
The reader is advised to lock your doors and windows until this problem is cleared up to the SEC's satisfaction.
Today, it seems to me that we have reached the absolute bottom of the barrel in terms of regulatory efficiency. If the SEC is spending three weeks on issues like this, and completely missing Bernie Madoff after they were told where to look and what they would find, then it's clear that something is seriously broken.
In my recent report on the SEC's recommendations to Congress, I noted that the average SEC examiner will audit, on average, 2.3 advisory offices a YEAR. While the agency is screaming for more money, and preparing to see a 50% drop in the number of RIA firms it examines, perhaps we should ask for a little more productivity--and maybe more effective examinations.
I'm tempted here to offer a lot of suggestions on how to do it better, but instead of that, let's have a little fun for a change. I'd like people to contribute, anonymously, or otherwise, the dumbest things that they were written up for by an SEC examiner. I'm talking about things that are miles outside of any reasonable protection of their clients--like, for example, the firm that was cited for making trades in its company 401(k) plan (basically investing monthly contributions at the beginning of the month) ahead, in some cases, of buying the same securities in client accounts when the money was contributed by the clients later in the month.
So they asked the examiner, should we wait until the end of the month, after all client trades have been made for that month? But wait; then they're trading ahead of NEXT MONTH'S client transactions, aren't they? How do we resolve this? The SEC examiner refused to give an answer. Answering questions like that wasn't his job.
Stuff like that. I'll be very interested to see what you come up with. The two best (dumbest) regulatory infractions will win a free subscription to my Inside Information newsletter.
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