Category: Publish to KM Space

Terror in Boston

boston

I’m watching the horror while on vacation instead of my office in Boston.

My heart goes out to all of the spectators and families who were affected by the blast. Patriot’s Day in Boston is usually a great day, starting with the Revolutionary War reenactments in the morning, a Red Sox home game, and the endurance of the marathon.

I’m also heartbroken by the runners who put in months of training, but were stopped short of the finish line. That finish line is a demarcation of salvation after making it the 26.2 miles from Hopkinton and up Heartbreak Hill. It should never be a crime scene.

TSA Compliance for Knives and Water

tsa knives

At first I thought Transportation Security Administration had gone completely insane. The blue shirts are now going to allow knives on planes as long as the blade is shorter than six centimeters and narrower than 1/2 inch. After looking closer I just think they merely incompetent.

Up front I should mention that I have never thought that post 9/11 airport security made me feel any safer flying. And if you balance the costs and aggravation to travelers against the small reduction in possible in-flight incidents, the TSA is completely out of control.

From a compliance perspective, the changes in the banned list make my head hurt.

Water, gels, and liquids in a container of more than 3 ounces are still dangerous. But actual knives are not.

Looking closer at the rules, the permitted knives are a very small subset of knives. The blades can’t be fixed or locked. That limits it to novelty knives. (I lost one of those to LaGuardia’s TSA line a few years ago with an old client’s logo on it.) The news releases and media report have largely failed to emphasize the continuing prohibition of locking blades. They should look closer at the image above.

I scratch my head over the use of centimeters for length and inches for width on limiting novelty knives. I guess the TSA wanted to use both sides of the ruler. Someday, the United States will join the rest of the world and embrace the metric system.

I suspect that TSA officials are big hockey fans because hockey sticks are now allowed on board. However, baseball bats are still banned, unless they are novelty size. You can also bring golf clubs, ski poles and lacrosse sticks on board. Clearly,  TSA officials are not baseball fans.

But that bottle of water is still more of a threat on board than a hockey stick.

Raise your hand if you think any of these rule changes are going to (1) make you feel safer flying, or (2) will result in less confusion in the long airport TSA lines? ……. No. I didn’t think so. That sounds like a policy failure, with the changes in policy failing to meet either of its main goals.

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How Much Did the Stimulus Affect Unemployment? Not Much

stimulus and spending

While the New York Fed is increasingly tasked with regulating financial institutions, its bread and butter is economic analysis. A recent report debunks the theory that the stimulus spending lowered unemployment.

James Orr, vice president in the Federal Reserve Bank of New York’s Research and Statistics Group, and John Sporn, a senior analyst in the Federal Reserve Bank of New York’s Markets Group, analyzed $860 billion (6 percent of GDP) stimulus contained in the 2009 American Recovery and Reinvestment Act, adopted in the context of rising unemployment rates.

Their analysis of the distribution of ARRA funds across states shows that the expanded assistance to unemployed workers was highly correlated with state unemployment rates. However, most other state allocations had little association—positive or negative—with state unemployment rates. You can see that reflected in the chart above.

In this battle of Keynes vs. Hayek, it looks like Hayek won.

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Compliance Bricks and Mortar – March 1 Edition

bricks 1

March comes in like a lion and out like a lamb. The same may be true of the SEC when it comes to the 2008 financial crisis and the SEC. This week’s  Supreme Court decision in Gabelli v. SEC,  means that the SEC has only 5 years after the date of the fraud to bring an enforcement action.

The 2008 financial crisis began in March 2008, when the Federal Reserve announced an unprecedented action to lend $30 billion to JPMorgan Chase to buy Bear Stearns. All the fraud that lead up to the collapse of Bear Stearns will be outside of the enforcement of the SEC in a few days.

The SEC is going to be left with post-collapse valuation failures as firms failed to write down their assets or fraudulently told their investors that everything was going to be okay, when the walls were collapsing around them.

Here are some of the other compliance related stories that recently caught my attention.

People Need to Stop Selling Earnings Info to Undercover FBI Agents
by Bruce Carton in Compliance Week

Unfortunately, the saying “those who don’t know history are destined to repeat it” has once again turned out to be quite accurate. Prosecutors alleged this week that in June 2011, several months after Sebbag was sentenced, a Long Island financial advisor named Damian Perna embarked on a similar scheme in which he obtained draft earnings reports for several public companies through a contact at an investor relations firm. Bloomberg reports that “after getting an advance copy of one earnings report, Perna sold it for $7,000 to a Federal Bureau of Investigation agent working under cover, prosecutors said.”

Yunnan official’s airport tantrum goes viralBy Benjamin Kessler in the FCPA Blog

The Chinese internet’s latest exemplar of official arrogance run amok is Yan Linkun, a committee member of Shizong County (Qujing City, Yunnan Province) Chinese People’s Political Consultative Conference (CPPCC).

Best Practices for Internal Investigation Interviews by Michael Volkov in the Corruption, Crime, & Compliance Blog

An internal investigation is only as good as the information elicited during interviews. I do not mean to belittle the importance of collecting and reviewing documents. But documents provide the framework, the context and the outline of a series of events – the investigation story. Also, documents are invaluable tools for investigators when conducting interviews. They constrain the witness’ ability to fabricate or mislead. In many cases, they provide the boundaries for truth.

FTC Releases Top 10 Complaint Categories for 2012

“Identity theft is once more the top complaint received by the Federal Trade Commission, which has released its 2012 annual report of complaints. 2012 marks the first year in which the FTC received more than 2 million complaints overall, and 369,132, or 18 percent, were related to identity theft. Of those, more than 43 percent related to tax- or wage-related fraud. The report gives national data, as well as a state-by-state accounting of top complaint categories and a listing of the metropolitan areas that generated the most complaints. This includes the top 50 metropolitan areas for both fraud complaints and identity theft complaints.”

Investment Adviser Certified Compliance Professional

IACCP Certification

Just tooting my own horn today. I finally fulfilled the requirement to become an Investment Adviser Certified Compliance Professional®.

With the SEC’s registration requirement for private fund managers, I took a closer look at what the SEC requires for compliance professionals.  Rule 206(4)-7 imposes no particular requirements on a chief compliance officer. The SEC release for the rule provides a bit a more context on the professional background requirements:

“An adviser’s chief compliance officer should be competent and knowledgeable regarding the Advisers Act…”

I  looked at several compliance programs but decided the Investment Adviser Certified Compliance Professional Program co-sponsored by the Investment Adviser Association and National Regulatory Services would be the best choice.

I assume this certification and designation would give me the right to say I am “competent and knowledgeable regarding the Advisers Act.”

The program is a lot of work: 20 courses and a test. The test was hard. I did not feel confident that I had passing marks when I handed it in. But apparently I did.

This was my lineup of courses, all of which were well run:

  • Introduction to the Advisers Act
  • Books and Records Requirements for Investment Advisers
  • Insider Trading, Contracts and Form ADV Deilvery Req.
  • Understanding Fiduciary Duties, Sweep of Anti-Fraud Prov
  • Custody, Pay to Play, Solicitors and Proxy Voting Anti-Fraud Rules
  • Compliance Programs Rules
  • IA Codes of Ethics
  • Prof. Ethics: Ethical Decision-Making for Compliance
  • Form ADV Part 1- Annual Updating Amendment and More
  • Form ADV Part 2: Identifying and Disclosing Conflicts-
  • Critical Skills for High Performance Compliance Profes
  • Investment Adviser Performance and Advertising
  • Investment Adviser Regulatory Update
  • Anti-Money Laundering Risk Management and Monitoring
  • Safely Embracing the Power of Social Media
  • Defensible Due Diligence for Investment Advisers and Hedge Funds
  • A Tailored Compliance Testing Program for IAs
  • SEC Examinations for Investment Advisers
  • Trading Practices, Portfolio Compliance and Related Enforcement Cases
  • RIA Year-End Compliance Check-Up

More on the Investment Adviser Certified Compliance Professional Program.

How Effective is Your Gate?

tight security

Does your compliance program sometime feel like this gate? A tool working alone is not necessarily effective. It may be a great tool, but still not be effective.

If it’s easy to get around then it’s not effective. Do you even know if people are going around? Is it even possible to know if they are going around?

Sometimes you have a great tool, but the tool does not work for your organization.

Image from There I Fixed It.

Social Media Access by Employers

facebook-monitoring

There was a kerfuffle in the news about employers demanding access to employees’ social media site. The stories stated the employers asked for the employees’ passwords, in addition to their usernames. In response, at least six states have started the legislative process to prevent employers from demanding that access.

As you might expect, the tricky part is defining “social media.” William Carleton put together a collection of the proposed definitions and grades for the legislative definition of social media.

Her is New Jersey’s attempt, as an example:

“’Social networking website’ means an Internet-based service that allows individuals to construct a public or semi-public profile within a bounded system created by the service, create a list of other users with whom they share a connection within the system, and view and navigate their list of connections and those made by others within the system.”

Not surprisingly, the best rated definition was the one that did not have a definition. By defining a social media site, you risk the sites evolving to no longer fit within the definition.

My beef was that the definitions were focused like a laser on Facebook, LinkedIn, and Twitter. They fail to cover web publishing sites like blogs. There is a follow-up post that offers some suggested improvements.

My two cents was that these social media sites should allow employers to monitor employees:

“In the financial services industry, there are regulatory requirements to monitor employees’ interactions with customers. That’s easy to do with platforms controlled by the firm, like email, but difficult with the ever-changing platforms in social media. The solution. The social media platform should allow a company to monitor an employee’s account provided the company pays a monitoring fee. Of course the employee will need to consent to the monitoring. The platform gets a revenue stream and the company gets the monitoring and record-keeping it needs. The employee ends up with ‘big brother’ but only if the company thinks it’s a big enough problem that it is willing to pay the monitoring fee.”

If you charge the company, they will limit the explicit monitoring to those instances when the cost/benefit makes economic sense.

With the constantly evolving privacy settings on the platforms, it’s often hard to be certain who can see what piece of information can be seen by whom. But it should not be hard on the back end for a social media site to create an archive for monitoring purposes.

This will also open up these sites for more prolific use by those who have a regulatory requirement that otherwise limits access.

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Ethics and the 75 percent

roger clemens

The 75 percent  number represents the votes needed by the Baseball Writers’ Association of America for a candidate to granted entry to baseball’s Hall of Fame. There were 569 ballots cast. On Wednesday, the BWAA announced that one of the greatest hitters and one of the greatest hitters in the history of baseball were denied entry.

Barry Bonds is the all-time home run leader. Roger Clemens is a seven-time Cy Young Award winner. Each received less than 40% of the votes cast. The BWAA has unequivocally decided that the use of performance enhancing drugs is a disqualifier for induction to baseball’s Hall of Fame.

Last year was the first test when Mark McGwire and Rafael Palmeiro fell short in the vote count.  You could make some argument that they would not have made it into the Hall of Fame even if they didn’t have the stain of performance enhancing drugs.

But Bonds and Clemens would have been first sure bets to be in the Hall of Fame, if it were not for the stain of performance enhancing drugs.  Their exclusion has to be because a large portion of the voting writers believes that taking steroids means you don’t have a bust in Cooperstown.

As early as 1991, Major League Baseball took the position that steroid use was against the rules. But it was not until 2005 that MLB adopted a formal policy, began testing, and issuing penalties.

I have to admit that I’m not a big baseball fan, but I am a Red Sox fan. You have to be if you grow up in Boston. That means my heart was broken in ’86 when the Mets beat the Sox. Roger Clemens was part of that Red Sox team. Ten year later Clemens left the team in what seemed like the twilight of his career.

But then came two incredible years in Toronto. His lights out pitching earned him two more Cy Young awards in Toronto. I look back and wonder this is where Clemens went down the dark path of performance enhancing drugs. When I look at fraud cases I always try find the triggering event for when the perpetrator stepped over the line and what caused him to do so.

Clemens was acquitted of lying about his steroid use. His legal prosecution is likely over. The court of public opinion, or at least the opinions of BWAA voters, stil consider him guilty.