The SEC inspects larger money managers at least every five years; smaller managers are reviewed by state securities regulators. In a typical year, the SEC conducts somewhere between 1200 to 1400 inspections of money managers, according to the article by Benchmark Companies’ founder and president Edward Siedle.
Rock and a Hard Place
Confronted with the possibility of wrongdoing, the plan sponsor can generally do one of two things:
- Pull the plan’s investment, potentially triggering transaction costs and drawing attention to the situation
- Ride out the situation, potentially putting the plan’s assets at risk
Sanctioning by the SEC means that a manager has been found to have engaged in a form of wrongdoing that is serious enough to merit some form of punishment.
However, Siedle notes that the SEC seldom hears from large pension funds and other institutional investors regarding problems with managers. In fact, these investors typically walk away from bad situations involving their managers without thinking to notify the SEC.
The article suggests the following steps if you hear that a fund manager may be in trouble with the SEC:
- Check the SEC’s website and have your counsel check LEXIS/NEXIS for information on the action.
- Make sure that contracts with fund managers provide for immediate written notice of any adverse regulatory developments, including deficiency letters.
- Get your pension consultant involved, tapping into their contacts with multiple funds and managers to ferret out the truth
Check out the full article at http://www.benchmarkalert.com/current/ .