The SEC is coming! The SEC is coming!

PEI PFC Forum 2013

These are my notes from the Private Fund Compliance Forum 2013. They are live notes, so please excuse my typos.

One thing that this past year has shown us is that at some point or another, sooner rather than later, the SEC will come knocking. This session will show you how to effectively prepare for their
arrival.

Tracey M. Chaffin, CFO & Partner, Pamlico Capital
Theodore E. Eichenlaub, Principal, ACA Compliance Group
Blair Flicker, General Counsel, Insight Venture Partners
Kelly S. Hale, Director of Compliance, TA Associates
Lois Towers, Chief Compliance Officer, Pantheon Ventures

Have your policies and procedures organized and available for ready access. Don’t have policies that you can’t or won’t follow. You’ll need some evidence that you are following the policies and procedures.

Prepare with a mock exam. Have key employees sit down and subject themselves to an interview. It will help you to see which employees will shine and which need more preparation.

Try a dry run with a document request letter. Grab one of the presence letters and pull all the documents requested.

Prepare an introductory presentation.

  • Who you are
  • how you make money
  • who are the key employees
  • what is your business model

This presentation can steer them away from issues that are not applicable to the firm’s business model. Don’t use an investor pitch, although you can use key parts. You want to introduce the firm. You want to stay away from portfolio details and past performance. It’s good to have some meet and greet with senior people. Having senior people introduce themselves helps to show to the SEC that you are taking compliance and the SEC presence seriously.

Make sure you have a log of every document you give them and keep a duplicate copy. If you provide documents electronically, its better to produce them in pdf instead of native format.

You can make some documents subject to a FOIA request. You can request that everything is subject. The process is detailed.

Alert employees to the upcoming visit from the SEC. Clean desks, don’t leave documents on the copier, and don’t talk about deals in public places.

Dedicate a room for them. You can lock it for them at the end of the day. The room need not be in the center of the operations. It may be better to keep them off to the side so they are not exposed to things that may¬†inadvertently¬†catch the examiners attention. Designate one person to be available at all times. Generally it’s the CCO.

Be aware that the examiner may not be able to accept food or beverages. Maybe a cup of coffee. So be careful about being too cordial.

Coach your employees before they sit down with the examiners. Have the answers be concise and brief. Make sure the employees are willing to respond to multiple questions that are similar. The examiner may not understand the response.

You should request an exit interview. It is very useful.

What to do if an investor asks for a copy of the deficiency letter? Don’t deliver a copy, but provide a summary. A deficiency letter is not public. Don’t misrepresent the nature of the exam or the contents of the letter.

You have 30 days to respond to the SEC deficiency letter.

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