sorry to bother you
35JCTDNX36RD
Doug Cornelius on compliance for private equity real estate
sorry to bother you
35JCTDNX36RD
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:
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.
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.
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:
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.
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.
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:
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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:
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.
Starting November 21, 2009, you need a new workplace poster: EEO is the Law.
There are two new federal workplace laws the Genetic Information Non-Discrimination Act and the ADA Amendments Act. Federal law requires all employers covered by the federal anti-discrimination laws (those with 15 or more employees) to post multilingual notices describing the federal laws against job discrimination.
If you want a fresh poster you can use print out and use the “EEO is the Law“ poster. If you already have a EEO poster, you can just add the “EEO is the Law” Poster Supplement.
References:
Eight federal regulatory agencies today released the final model privacy notice form. It’s supposed to make it easier for consumers to understand how financial institutions collect and share information about consumers. Under the Gramm-Leach-Bliley Act, institutions must notify consumers of their information-sharing practices and inform consumers of their right to opt out of certain sharing practices. The two model form issued today can be used by financial institutions to comply with these requirements. One form allows consumers to opt out of sharing of personal information. The other form has no opt-out.
Back in April, the Securities and Exchange Commission reopened the period for public comment because they tested the model notices and found weaknesses with the current form.
The final model privacy form was developed jointly by the Board of Governors of the Federal Reserve System, Commodity Futures Trading Commission, Federal Deposit Insurance Corporation, Federal Trade Commission, National Credit Union Administration, Office of the Comptroller of the Currency, Office of Thrift Supervision, and Securities and Exchange Commission. There is also a joint release of the rule that goes along with the Final Model Privacy Form under the Gramm-Leach-Bliley Act
References:
The Congressional Budge Office released a cost estimate of H.R. 3818, the Private Fund Investment Advisers Registration Act of 2009. Obviously, there will be an additional cost to fund managers that need to register with the SEC and operate under the SEC rules and oversight. There is also a real cost to the SEC (and therefore the taxpayers) for supervision of the newly regulated fund advisers.
The CBO estimates that the SEC will need an additional $140 million over the 2010-2014 period to implement the provisions of H.R. 3818. That means 150 employees new SEC employees by fiscal year 2011 to write regulations and undertake the additional examination and enforcement activities required by the bill. That’s about a 4 percent increase over the SEC’s 2009 staffing levels. The $140 million is to cover the cost of salaries and benefits, overhead, preparation of reports, and upgrades to information technology systems for the new employees.
The CBO report estimates that H.R. 3818 would result in 1,300 new registrations. That excludes venture capital funds which are exempted under this bill, but does include private equity firms that are exempted under the Senate version of the Private Fund Investment Advisers Registration Act. Doing the math, that results in $108,000 in additional costs for each new fund manager that registers.
On the manager side, the CBO estimates that it will only cost $30,000 for each fund manager to comply with Private Fund Investment Advisers Registration Act of 2009.
References: