Compliance Bricks and Mortar for June 28

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These are some of the compliance-related stories that recently caught my attention.

Performance Fantasies Lead to SEC Enforcement Action by Jay B. Gould in Pillsbury’s Investment Fund Law Blog

For fund managers and investment advisers, there are a number of takeaways from the D’Amato case. First, when back tested or hypothetical “performance” is used in marketing materials, full and accurate disclosure must be made to investors and potential investors. The methodology used must be sound and records must be kept. Similarly, with respect to actual performance, calculations must be accurate and verifiable and must be presented in a context that does not make otherwise accurate information misleading in any material way. Fund managers, in particular, should not dismiss the D’Amato case because it occurred in the context of mutual funds and more “retail” type investors. The SEC and state regulators are willing to go back and look at past marketing presentations for inflated or inaccurate claims, all of which are required to kept as part of an adviser’s books and records.

Some Thoughts on What Makes a Good CCO by Tom Fox

There are several prominent commentators who frequently discuss the role a Chief Compliance Officer (CCO). One such commentator is Donna Boehme, who regularly writes articles, speaks about, and even tweets on this subject. But what type of mindset does a CCO need to be successful? What are some of the skills? I thought about those questions when I read three very different articles on unrelated topics recently.

Paul Weiss discusses ISDA’s March 2013 Dodd-Frank Protocol by Manuel Frey in The CLS Blue Sky Blog

Since the effectiveness of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), the Commodity Futures Trading Commission (the “CFTC”) has finalized many of the rules that implement the detailed regulatory regime outlined by the Dodd-Frank Act. A number of these rules require market participants to update their swap trading documentation to comply with this new regulatory regime. This client alert outlines coverage and adherence mechanisms of the ISDA March 2013 Dodd-Frank Protocol (the “March Protocol”), the newest installment of ISDA’s well-tested mechanism aimed at facilitating the multilateral and standardized amendment of swap trading documentation.

Why Do Family Firms Thrive? by Chris MacDonald in the Business Ethics Blog

The family in question may have not just a strong position in terms of the stock it holds; they may also bear the name that’s emblazoned on the company letterhead. And the company’s origins and evolution may be intimately bound up with the family’s own history. This adds up to considerable influence. Is that influence a good or a bad thing? In principle, at least, there’s a worry that the family’s influence might not always work in the interests of other shareholders. And this worry is exacerbated by the fact that family-controlled companies often don’t stick to widely-acknowledged best practices in terms of corporate governance.

Crisis Chronicles: 300 Years of Financial Crises (1620–1920) by James Narron and David Skeie in Liberty Street Economics

The Kipper und Wipperzeit is the common name for the economic crisis caused by the rapid debasement of subsidiary, or small-denomination, coin by Holy Roman Empire states in their efforts to finance the Thirty Years’ War (1618–48). In a 1991 article, Charles Kindleberger—author of the earlier work Manias, Panics and Crashes and originally a Fed economist—offered a fascinating account of the causes and consequences of the 1619–23 crisis. Kipper refers to coin clipping and Wipperzeit refers to a see-saw (an allusion to the counterbalance scales used to weigh species coin). Despite the clever name, two forms of debasement actually fueled the crisis.


Brick Wall by Aaron Smith