After a record year for enforcement actions, investment advisors can expect continued close scrutiny from authorities at the
Investigators are taking a hard look at the RIA sector as they scan for breaches of fiduciary duty, undisclosed conflicts of interest and other transgressions, the head of the commission's enforcement unit told members of a House subcommittee on Thursday.
In testimony before a Financial Services Committee panel,
INACCURATE REPORTING, ADVISOR FOCUS
In particular, the commission is on the lookout for inaccurate reporting that could overstate performance of a particular investment vehicle, or otherwise mislead retail investors and undermine confidence in the financial markets.
"Comprehensive and accurate financial reporting is critical to ensuring that investors have access to reliable information and can make informed investment decisions, because false or misleading financial information erodes the integrity of the markets," Ceresney told members of the Subcommittee on Capital Markets and Government-Sponsored Entities.
"We have intensified our focus on this area and recently have seen a significant increase in financial reporting and auditing investigations and filed actions."
And much of that scrutiny is trained on advisors, a segment Ceresney cited specifically in his testimony.
"Investment advisors and the funds they manage also remain a focus of the division, and we regularly investigate and bring actions against investment advisors for conflicts of interest, misrepresentations regarding performance or investment strategies, breaches of their duties to their clients, and other fraudulent conduct," he said.
In all, the
While Ceresney touted that number as an indicator of his division's "vigorous" approach to enforcement, he also stressed that his team is pursuing new methods of policing the industry, including bringing in more outside experts, making better use of data analytics to identify and investigate bad actors, and, in some cases, offering an expedited settlement process. In that last category fall many offenses that previously might not have risen to the level of a full-on investigation, but, in keeping with the "broken windows" philosophy of enforcement, are now on the commission's radar, even as it struggles with limited resources.
"To maximize its impact and send a strong message of compliance while still conserving investigative resources, the [Enforcement] Division in some of these areas is pursuing streamlined investigative and settlement efforts that provide incentives to wrongdoers to resolve charges quickly," Ceresney said in his written testimony.
And the commission is looking to grow its ranks. Ceresney put in a plug for the
At one point, Ceresney faced questioning about a fiduciary proposal underway at the
Ceresney would not engage.
"In the Enforcement Division we're in charge of enforcing the rules and the laws as they exist right now, I think what you're referring to is a policy question as to what the law should be in the future," he told Wagner.
Wagner has re-introduced a bill that would bar the
ADMINISTRATIVE PROCEEDING BIAS?
Much of the hearing focused on the venue and procedures the
"Do you think there could be any correlation when you actually hire the judges, and you set the rules, that you win all the cases? Do you see a correlation there?" said Rep.
Ceresney noted that the undefeated record the
"I will just say this, we are not afraid to try cases in federal court," he said. "We still bring the majority of our cases in district court, so we're not shying away from using district court."
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