The Securities and Exchange Commission’s enforcement division announced a major reorganization Wednesday when it appointed five new specialized teams that will monitor activities within the major components of the financial markets, including one devoted to overseeing investment advisors and investment companies.
The SEC also unveiled the office of market intelligence, led by Thomas Sporkin. The office will analyze and follow up on tips of wrongdoing.
The asset management unit will focus on investigations involving investment advisors, investment companies, hedge funds and private equity funds. Co-chiefs Bruce Karpati and Robert Kaplan will lead that group. Karpati was assistant regional director for the SEC’s New York regional office, and founded the hedge fund working group. Karpati was also a branch chief and attorney in the division of enforcement at the agency. Kaplan was assistant director of the SEC’s division of enforcement. He was assistant chief litigation counsel and senior counsel/staff attorney in the enforcement division.
The financial services industry is constantly evolving and is now consolidating, Karpati said during the announcement. The group will put an infrastructure in place that will allow it to develop and maintain knowledge in the areas they enforce, be pro-active about investigating complaints, and use its resources to collaborate with other market professionals.
“This subject matter is not new to us,” Kaplan said.
All of the units will receive additional experts, administrative staff and technical support to get them up and running, said Robert Khuzami, the SEC’s director of the division of enforcement.
Industry professionals reacted positively to the new announcement, although they took a wait-and-see stance as to how the changes might affect advisors’ daily lives.
“I think it is good the SEC is taking these steps to create specialized areas,” said Kristina Fausti, director of legal and regulatory affairs for Bridgeville, Penn.-based Fiduciary360. “The hope is to move investigations and cases along more efficiently and effectively.”
She said that many of the appointed unit leaders, some of whom she knew when she worked at the SEC from 2004 to 2009, have good reputations in the industry. Still, the announcement raised an important question as to how the niched units would react to market trends as they emerge.
“We have said for months and months that we support giving the SEC adequate resources to do its job,” said David Tittsworth, executive director of the Investment Advisers Association, in Washington, D.C. “Investment advisors should expect more heightened scrutiny from the SEC in the coming weeks and months.”
The other specialized units are: market abuse, headed by Daniel Hawke, to handle large-scale market abuses and complicated manipulation schemes by institutional traders and other market professionals; structured and new products, headed by Kenneth R. Lench, to focus on complex derivatives, credit default swaps, collateralized debt obligations and securitized products; foreign and corrupt practices, led by Cheryl Scarboro, to deal with violations of the Foreign Corrupt Practice Act; and the municipal securities and public pensions, led by Elaine C. Greenberg, to handle misconduct in the municipal securities and public pensions markets.
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