These are my notes, live from the forum. (Please pardon the rougher nature.)
Moderator:
Rob Kotecki, Reporter, Private Funds Management
Speakers :
Roman A. Bejger, Esq., General Counsel & Chief Compliance Officer, Providence Equity
Danielle Ryea, Senior Manager, EY
David Smolen, General Counsel & Chief Compliance Officer, GI Partners
The Blackrock enforcement action was levied against the firm and the CCO for a conflict of interest issue with an investment and one of its portfolio managers. The portfolio manager had disclosed the conflict to the CCO. The charge was that the CCO failure to report a “material compliance matter” to the board of directors. The CCO was personally liable and had to pay a fine of $60,000.
On the other hand, a CCO can be a whistleblower and get the financial windfall of the bounty. (Assuming the company fails to fix the problem.
If the firm retaliates, the SEC can pass along part of the award for the retaliation.
How does an internal procedure for reporting problems compete with large whistleblower payments?
Life of a whistleblower is difficult. Few see the big financial reward and if they do, it takes a long time to get to the point of an award being granted. It’s more like winning the lottery, with long odds.
You CAN’T contractually prevent employees from being whistleblowers or talking to regulators. See the KBR case: SEC Action for Stifling Whistleblowers in Confidentiality Agreements.
Take a look at the Shelton case. The administrative order required the firm to split the general counsel and chief compliance officer roles:
“For a period of five (5) years from the entry of this Order, [Shelton Financial Group] shall employ a Chief Compliance Officer whose sole responsibility will be serving in that position.”
The burden of compliance is only continuing to grow.
Are the SEC rules getting in the way of private equity compliance? The SEC rules mandates you to pre-clear trades and monitor employee trading, but the big issue is monitoring fees and expenses charged to portfolio companies. (UPDATE: Pre-clearance is not required by SEC rules.)
How have things changed since Bowden’s sunshine speech? Some have changed the Form ADV. Some have increased testing. Some have changed their policies. The LPA can’t be changed, so fees and expenses need to be in compliance with the agreement.
Cybersecurity- How does a compliance officer get his or her hands around this without a technology background? It is a tough gap to bridge. The SEC at least wants you to be thoughtful. (At least we think so.)