Month: November 2011

Compliance Bits and Pieces for November 4

Here are some compliance-related stories that recently caught my attention:

How Trustworthy Are You? from the Trusted Advisor

A summary infographic on five questions from the Trust Quotient self-assessment

Investigation Nation: SEC Employees and Inspector General Play Cat-and-Mouse by Bruce Carton in Compliance Week’s Enforcement Action

A group called Citizens for Responsibility and Ethics in Washington (CREW) has asked the SEC Inspector General to launch an investigation into whether SEC employees are using private email accounts and cell phones to avoid having their communications reviewed in SEC Inspector General investigations.

To Err Is Human . . . and Punishable by the SEC by Russell G. Ryan in CFO

Even as the SEC pleads for more resources from Congress to keep up with existing responsibilities and the mind-boggling array of new regulatory burdens dumped upon it by last year’s Dodd-Frank financial reform act, the agency reportedly intends to expand its enforcement reach. The regulator will apparently pursue not only its signature cases against deliberate and reckless fraudsters, but also cases against people who make merely negligent mistakes. Apparently, as the SEC has progressed with its investigations relating to the financial meltdown, it has found many examples of negligence and bad judgment, but fewer instances of deliberate fraud than most people assume.

The Seven Deadly Sins for a Compliance Program by Tom Fox

1. Putting the Code of Conduct on your Shelf
2. Ignoring your Company’s Culture
3. Worshiping at the Altar of Highest Grade Point Average
4. Letting the Money Talk
5. The Parent Trap – Do as I say, not as I do
6. Ethics in the Corner
7. Shooting or Ignoring the Messenger

When Prediction Markets Go Bad in Saturday Morning Breakfast Cereal

For some R Rated Humor

FCPA as a Strike Breaker

united steel workers logo

The United Steelworkers sent a request to investigate to the U.S. Justice Department. The union believes Freeport-McMoRan has violated the Foreign Corrupt Practices Act by engaging the bribery of security forces in Indonesia.  The Jakarta Post said national police chief Gen. Timur Pradopo admitted his personnel had received ‘meal money’ to guard the company’s gold and copper mine in Grasberg, West Papua. The union is arguing that those payments to police from Freeport-McMoRan’s local subsidiary constitute bribes. Production at the mine has been crippled and infrastructure sabotaged by protesters. Seven people have been killed in clashes between workers and police and mysterious hit and run attacks.

According to the Jakarta Post a diplomatic cable leaked by Wikileaks also revealed that Freeport paid the Indonesian Military (TNI) and the Police to secure mining activities in the restive province.

A spokeperson for PT Freeport Indonesia said funds given to security personnel guarding project sites in Papua are allowed under the Voluntary Principles on Security and Human Rights, a set of guidelines created by the United States and Britain in 2000 for the extractive industry dealing with security issues. “The support for the government-provided security includes in-kind assistance and monetary allowances to mitigate living costs and the hardship elements of a remote posting assignment to our mining area in Papua,” the statement said.

A member of the Indonesian Forum for the Voluntary Principles for Security and Human Rights, Agus Widjojo, said that security officers should not directly receive “meal money” without reporting it to the Finance Ministry. “It may be true that police officers face particularly tough situations in Papua. But it does not mean they can receive the money directly from Freeport without reporting it to the state’s finance agency,” he said.

Back in 2006, the New York City Comptroller asked the SEC to look into Freeport-McMoRan for knowingly made “false or misleading” statements about payments to the Indonesian military. In a letters to the agency, the comptroller, William Thompson Jr. said he believed the company might have violated the Foreign Corrupt Practices Act.

Could it be a bribe to pay the police to do their job? The United Steelworkers take the position that Indonesian security personnel are being paid to act in the defense of the interests of Freeport-McMoRan in
conflict with their duty to protect Indonesian people.

At the very least, it’s an interesting strategy by the union to help workers in another country.

Sources:

Form PF and Private Funds

IN addition to filing Form ADV with the SEC when they register with the Securities and Exchange Commission, private fund managers will also need to start filing Form PF next year. The amount of information required by Form PF is tiered. Advisers managing less than $150 million in private funds are not required to file, as these firms are not likely to generate systemic risk within the financial industry. Smaller private fund advisers must file Form PF only once a year within 120 days of the end of the fiscal year, and report only basic information regarding the private funds they advise. This includes limited information regarding size, leverage, investor types and concentration, liquidity, and fund performance. Smaller advisers managing hedge funds must also report information about fund strategy, counterparty credit risk, and use of trading and clearing mechanisms. Larger private fund advisers must provide more detailed information than private fund advisers. For example, large hedge fund advisers managing more than $1.5 billion (this threshold was raised from $1 billion in the proposed rule) need to file additional information on Form PF. Large private equity advisers with $2 billion in assets under management (this threshold was raised from $1 billion in the proposed rule) also must submit additional information on Form PF. Altogether, the seven types of private fund defined in Form PF are: (1) hedge fund; (2) liquidity fund; (3) private equity fund; (4) real estate fund; (5) securitized asset fund; (6) venture capital fund; and (7) other private fund. For real estate private equity funds, the FORM PF defines “private equity fund” as any private fund that is not a hedge fund, liquidity fund, real estate fund, securitized asset fund or venture capital fund and does not provide investors with redemption rights in the ordinary course. So real estate funds should only have to make the shorter annual report. Regarding timeframes, smaller private fund advisers and smaller private equity fund advisers only need to file Form PF once per year. Larger hedge fund advisers must file Form PF quarterly and have 60 days after each quarter ends to submit the form. (This is longer than the originally proposed 15 days.) Most private fund advisers will be required to begin filing Form PF following the end of their first fiscal year or fiscal quarter, as applicable, to end on or after December 15, 2012. However, three categories of advisers must begin filing Form PF following the end of their first fiscal year or fiscal quarter, as applicable, to end on or after June 15, 2012:

  • Advisers with at least $5 billion in assets under management attributable to hedge funds.
  • Liquidity fund advisers with at least $5 billion in combined assets under management attributable to liquidity funds and registered money market funds.
  • Advisers with at least $5 billion in assets under management attributable to private equity funds.

One other noteworthy change to Form PF requirements is that advisers will not be required, as originally proposed, to formally certify that information submitted on Form PF is “true and correct” under penalty of perjury. SEC has chosen FINRA to accept Form PF filings. That means more use of the IARD filing system. And perhaps, moving a step closer to FINRA becoming the SRO for investment advisers. Sources: