Month: November 2009

How Fraudsters Try to Look Legitimate

Investor.gov

The SEC is putting its new investor-focused website to good use: Investor.gov.

The first item that caught my eye was their article on how fraudsters use fake SEC registrations and bogus seals to make them look legitimate: Fake Seals and Phony Numbers: How Fraudsters Try to Look Legit.

They offer these five pieces of advice:

  • Deal Only With Real Regulators
  • Be Skeptical of Government “Approval”
  • Look Past Fancy Seals and Impressive Letterheads
  • Check Out the Broker and the Firm
  • Be Wary of “Advance Fee” or “Recovery Room” Schemes

“If you want to invest wisely and steer clear of frauds, you must get the facts. Never, ever, make an investment based solely on a promoter’s promises or what you see on the Internet”

The other thing that caught my eye as a blogger, was the SEC’s use of an out of the box WordPress blog deployment to run the Investor.gov website. Just like I use here at Compliance Building.

Happy Thanksgiving

That means an extra long weekend for me.

Truman at the White House thanksgiving

The White House traditionally pardons their turkey. The tradition is credited to President Truman who received a White House turkey for Thanksgiving. But there is no evidence that he spared the life of the turkey. According to an in-depth investigative report by the Washington Post, it was George H.W. Bush (41) who first officially pardoned a Thanksgiving turkey:Turkey Pardons, The Stuffing of Historic Legend.

Enjoy the long weekend if you can. I have some stuff in the oven for when I’m back on Monday.

Thanksgiving_oven

Oven image by Joseph Zollo on Wikimedia Commons:Thanksgiving oven.jpg

Engage with Grace

With the Thanksgiving holiday this weekend, I’m turning the blog over to public service.

Some conversations are easier than others.

Last Thanksgiving weekend, many bloggers participated in the first documented “blog rally” to promote Engage With Grace – a movement aimed at having all of us understand and communicate our end-of-life wishes.

It was a great success last year, with over 100 bloggers participating and spreading the word. Plus, it was timed to coincide with a weekend when most of us are with the very people with whom we should be having these tough conversations – our closest friends and family.

The original mission – to get more and more people talking about their end of life wishes – hasn’t changed.

A bit of levity.

At the heart of Engage With Grace are five questions designed to get the conversation started. I’ve included them at the end of this post.  They’re not easy questions to answer, but they are important.

To help ease us into these tough questions, and in the spirit of the season, I’m going to start with five parallel questions that are easy to answer:

The Easy Questions:

engage with grace 1

Silly? Maybe. But it underscores how having a template like this – just five questions in plain, simple language – can deflate some of the complexity, formality, and even misnomers that have sometimes surrounded the end-of-life discussion.

So with that, I’ve included the five questions from Engage With Grace below. Think about them, document them, share them.

The Hard Questions:

engage with grace 2

Over the past year there’s been a lot of discussion around end of life.

One man shared how surprised he was to learn that his wife’s preferences were not what he expected. Befitting this holiday, The One Slide now stands sentry on their fridge.

Wishing you and yours a holiday that’s fulfilling in all the right ways.

Updated links to others in the blog rally:

Real Estate and OFAC Compliance

650 fifth avene

The tale of 650 Fifth Avenue is one that should be closely watched by compliance professionals dealing with real estate. Last year, the Department of Justice filed a forfeiture proceeding against a 40% interest in the property held by the Assa Corporation. They recently filed a forfeiture proceeding against the other 60% held by the Alavi Foundation.

The Amended Complaint alleges that the Alavi Foundation has been providing numerous services to the Iranian Government and transferring funds from 650 Fifth Avenue Company to Bank Melli, a bank wholly owned and controlled by the Government of Iran. The Amended Complaint alleges that the properties are forfeitable as the proceeds of violations of the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et seq., together with Executive Orders and United States Department of Treasury regulations, and as property involved in and the proceeds of money laundering offenses.

Now the tenants are in the position of having been making rent payments to the Iranian government. This may not result in any criminal or civil sanctions, but the names of those tenants are being dragged through the muck. The same is true for the property management company.

References:

The Four Areas of Risk and Knowledge

4 box black swan

When thinking about risk, I break things into four quadrants. There are things we know and there are things we don’t know as individuals. I then slice slice that further again with the things we know and the things we don’t know as part of the larger organization or conscious state.

Our sweet spot is the the things we know that we know. (The green area on my chart.) Those are our operations. Those are the things we have in the realm of compliance. We may not be fully compliant and dealing with the risk. But it is known.

At the opposite corner are the things that we don’t know that we don’t know. This is the black swan territory. This is an area of danger for an organization. This is a knowledge void and a compliance void. These are risks that we don’t know about. We don’t know the magnitude of the risk and we don’t know it even exists. Our models miss this factor. Our organizations are not paying attention to these risks.

4 box black swan

The other two areas are also interesting.

The things we know that we don’t know is an area that we know we can improve. (The orange quadrant on my chart) This is the area of known ignorance or accepted unknowns. You can manage these risks, because we know them. They have been identified, although not quantified. They may be on the list of things to address. Or we may just be willing to run naked in this area and are not worried about the risk.

The last area of the things that we don’t know we know is an area of opportunity. (The purple quadrant on my chart) This is risk that they are managing, even if they don’t know that risk exists. Often this will be a risk associated with another risk, either through causation or correlation. If an organization realizes they have this knowledge, they maybe able to create a new opportunity for themselves by discovering it. You do need realize that the causation or correlation may sever at some point, pushing this risk down into the territory of the black swan.

There is also an element of danger in the opportunity area when it comes to records management. These may be the pieces of information getting unearthed during litigation that gets an organization in trouble.

It’s important to realize and accept that there are things we don’t know. The key to bettering the organization is to continually try to reduce the amount of stuff that we don’t know.

I want to credit Liam Fahey, a professor at Babson College and co founder of the Leadership Forum, for the origins of this matrix. He gave a presentation using this analysis to a group of law firm knowledge management leaders in October of 2008.

Positioning yourself for tomorrow’s social media today: Practical approaches for legal professionals

lexisnexis

Join me for a 60-minute Webinar at 11:00 am Eastern time on Wednesday, December 9. It’s free, sponsored by Martindale-Hubbell Connected.

The webinar will give you ‘real world’ examples of social media tools helping legal professionals become more efficient and productive. The panelists will also discuss the future of social media use – will we soon say goodbye to email?

The webinar panel includes a range of legal professionals and social media experts from across the globe:

You can register for the webinar here.

Learn real world examples of how social media tools help legal professionals be more efficient. Explore the future of social media.
Topics:

  • Time management: Finding the time.
  • Personal and professional development: Ways to research, share and learn by collaboration.
  • Future uses by of social media

Compliance Bits and Pieces for Nov. 20

Here are some interesting stories from the past week:

How Presenters Can Deal With A.D.D. Audiences by Charles H. Green for Trust Matters

In other words—the heads-down twittering was definitely multi-tasking, but that doesn’t mean there was no dialogue going on. In fact, there was a ton of dialogue.

More content per minute flowed through that room than if everyone had hung on every word a speaker said. One speaker is limited by the human ability to enunciate sounds rapidly, and—it’s only one speaker. We can all read much faster than someone can talk. Asynchronous one-off communication is bound to be less rich than everyone talking at once; it’s just that it’s harder to focus in the latter case.

The Blind Side – how risk managers are like lineman

The post is a summary of an article written by Beaumont Vance in Risk Management Reports (February 2008) where he drew comparisons between the role of the Left Tackle (described in Michael Lewis’s book The Blind Side) and the future of risk professionals: Protecting your Blind Side.

Be Careful Telling Therapist About Insider Trading by Bruce Carton for Enforcement Action

The U.S. Senate takes an extreme interest in potential insider trading by the hedge fund you worked for and, as part of nine federal investigations into the matter, obtains the psychologist’s deposition testimony and makes sure it goes to federal prosecutors and the SEC.

Review of SEC’s Process for Selecting Adviser Examination Targets

Review of the Commission’s Processes for Selecting Investment Advisers and Investment Companies for Examination

To continue the Madoff dogpile on the SEC, the SEC’s Office of Inspector General released a report criticizing the SEC’s process for selecting investment advisers and investment companies for examination.

Review of the Commission’s Processes for Selecting Investment Advisers and Investment Companies for Examination pdf-icon

As a result of OCIE never having examined Madoff’s investment firm, the Inspector General conducted this review to determine OCIE’s rationale for not performing an examination of Madoff’s investment advisory business. They came up with 11 recommendations:

Recommendation 1:

The Office of Compliance Inspections and Examinations (OCIE) should implement a procedure requiring, as part its process for creating a risk rating for an investment adviser, that OCIE staff perform a search of Commission databases containing information about past examinations, investigations, and filings related to the investment adviser.

Recommendation 2:

The Office of Compliance Inspections and Examinations (OCIE) should change the risk rating of an investment adviser based on pertinent information garnered from all Divisions and Offices of the Commission, including information from OCIE examinations and Enforcement investigations, regardless of whether the information was learned during an examination conducted to look specifically at a firm’s investment advisory business.

Recommendation 3:

The Division of Enforcement and the Office of Compliance Inspections and Examinations should establish and adhere to a joint protocol providing for the sharing of all pertinent information (e.g., securities laws violations, disciplinary history, tips, complaints and referrals) identified during the course of an investigation or examination or otherwise.

Recommendation 4:

The Office of Compliance Inspections and Examinations (OCIE) should establish a procedure to thoroughly evaluate negative information that it receives about an investment adviser and use this information to determine when it is appropriate to conduct a cause examination of an investment adviser. OCIE should ensure its procedure provides for timely opening of a cause examination.

Recommendation 5:

When the Office of Compliance Inspections and Examinations (OCIE) becomes aware of negative information pertaining to an investment adviser, OCIE should examine the investment adviser’s Form ADV filings and document and investigate discrepancies existing between the adviser’s Form ADV and information that OCIE previously learned about the registrant.

Recommendation 6:

The Office of Compliance Inspections and Examinations (OCIE) should establish a procedure to thoroughly evaluate an investment adviser’s Form ADVs when OCIE becomes aware of issues or problems with an investment adviser. OCIE should document areas where it believes a Form ADV contains false information and initiate appropriate action, such as commencing a cause examination.

Recommendation 7:

The Office of Compliance Inspections and Examinations (OCIE) should re-evaluate the point scores that it assigns to advisers based on their reported assets under management. OCIE should assign progressively higher risk weightings to firms that have greater assets under management.

Recommendation 8:

The Office of Compliance Inspections and Examinations (OCIE) should re-evaluate the point scores that it assigns to firms based on their reported number of clients to which they provide investment advisory services. OCIE should assign progressively higher risk weightings to investment advisers that serve a larger number of clients.

Recommendation 9:

The Office of Compliance Inspections and Examinations (OCIE) should recommend to the Chairman’s office that it institute a Commission rulemaking that would require the following additional information to be reported as part of Form ADV:
• Performance information;
• A fund’s service providers, custodians, auditors and administrators, and applicable information about these entities;
• A hedge fund’s current auditor and any changes in the auditor; and
• The auditor’s opinion of the firm.

Recommendation 10:

The Commission should finalize the proposed rule titled Amendments to Form ADV [Release No. IA-2711; 34-57419]. In finalizing this rule, the Commission should consider what, if any, additional information investment advisers should include in Part II of Form ADV by consulting with the Office of Compliance Inspections and Examinations (OCIE) and the Division of Investment Management (IM). Further, the Commission, in consultation with OCIE and IM, should consider provisions that would assist OCIE to efficiently and effectively review and analyze the information in Part II of Form ADV.

Recommendation 11:

The Office of Compliance Inspections and Examinations (OCIE) should develop and adhere to policies and procedures for conducting third party verifications, such that OCIE verifies the existence of assets, custodian statements, and other relevant criteria.

This is now the fourth report the SEC’s OIG has issued as a result of Madoff, following up on:

Private Fund Investment Advisers Registration Act Status

OpenCongress allows you to create custom widgets for the status of bills in Congress. I decided to play around and create one for the House version of the Private Fund Investment Advisers Registration Act.


I’ll create one for the Senate version once they formally introduce the Restoring American Financial Stability Act of 2009.