SEC Steps Up Frequency of Fund Exams
September 25, 2000
CHICAGO - The SEC has stepped up its routine fund examinations from once every ten or 15 years to every five, said Gene Gohlke, associate director of the SEC's office of compliance, inspections and examinations. Gohlke spoke on a panel about SEC examinations during the ICI tax and accounting conference here last week.
"If you have not been inspected over the last few years, you can expect the SEC to come calling," Gohlke said.
In its exams, the SEC will be reviewing best execution, reliable information technology systems, fulfillment of any promises to provide 24-hour, seven-day-a-week service to customers, fair IPO allocation, fund performance advertising that is not misleading, and adherence to the privacy rules mandated by the Gramm-Leach-Blilely Act, Gohlke said.
To be prepared for exams, fund companies should have clear and concise records both in hard copy and electronic files dating back six years, panelists said.
It also helps to conduct mock SEC inspections every two years, said Ann Oglanian, general counsel and chief compliance officer at Montgomery Asset Management of San Francisco.
"Coach portfolio managers to be able to answer questions succinctly," Oglanian said.
Companies also should not provide information beyond what the SEC requests, Oglanian said. It is also not necessary to "provide documents that are privileged or confidential," she said.
"Restrict their access to sensitive documents," she said. " If they ask for something you do not want to give, do not withhold information. However, this is not a bad time to call counsel."
"Too much information can get you into trouble," said Anthony Evangelista, a partner with PricewaterhouseCoopers of New York. Evangelista recalled cases in which clients supplied SEC inspectors with board meetings minutes with incriminating director comments penciled in the borders. It is best to always keep multiple, clean copies for SEC staff, he said.
Whatever a firm provides to the SEC, it is critical to keep a copy of one's own, Oglanian said.
She also suggested that companies appoint a senior staff person to be the principal person to communicate with the SEC. She also recommended daily status meetings for staff to review SEC requests.
"Feel free to ask questions, because we have a limited period of time," Gohlke said.
Often, SEC inspectors are "young and occasionally unpleasant," said Oglanian.
"Don't let that distract you," she said.
She also recommended that employees be informed that the SEC is at the firm, conducting an examination.
It was clear from discussions at the conference that SEC examinations can provoke anger among those being inspected.
Oglanian suggested that those being inspected not slug the examiner as one portfolio manager in Nevada did during an SEC exam.