How does SEC open a probe into criminal behavior by an mutual fund or ETF manager

Discussion in 'Economics' started by Robert McDougal, Dec 15, 2017.

  1. So I know if you start either, you must register with the SEC. But if there's an actively managed fund that gets insider information and uses it to buy/sell some of the securities in the pool and maybe they embezzle the money as well, is there a white collar crime analyst that looks for this stuff who works at SEC? Whats the process like when they open a probe? Is there an SEC boss that approves investigation? At what point do they go to a DA?

    Is it like the FBI or a CIA movie.
    SEC Analyst:
    Hey boss, I was looking through quarterly review and these securities in this ETF were shuffled a little too conveniently. Its like the P/E or any chart would lead one to believe this company would at best stay stagnant but likely slowly go down, yet this ETF somehow knew to go long.
    SEC Boss:
    Yes counselor, lets open a probe! I'm assigning Detective Mustache to join forces with you on this case. You'll be working together, now get me some more hard line proof! And we'll meet some more in this conference room.

    And then like at some point, they put the faces up of the suspected insider traders or money launderers like in Homeland the show and somebody explains everything about them to a bunch of people.

    Is that how it works?
  2. Robert Morse

    Robert Morse Sponsor

    It is my understanding that in general, the SEC investigates “customers” and the SRO, or self regulatory body that the BD or manager that regulates the manager or BD investigates those businesses. That is often FINRA.

    It can start with a complaint or a red flag during a typical exam.
    murray t turtle likes this.
  3. toc


    For insider trading SEC has sophisticated softwares that identify all sorts of patterns in the daily activities of individual stocks and overall exchanges.

    Like mentioned above, complaints and manual audits also lead to observation and if needed investigations.

    One thing I would SEC to make into law is that investment into an Hedge Fund should allow only limited trading authority to the manager/management. There have been cases like Madaoff where fund manager was making merry with AUMs and producing false reports to clients to keep new money flowing in.
  4. Sig


    If you're asking about insider trading, they would get flagged by the SECs market monitoring team same as any other suspicious transaction. Chances are the investigator wouldn't even know if the suspicious transactions were made by an individual or fund until after they got further into the investigation, and the difference is immaterial in any case. A good number of the recent insider prosecutions are of hedge fund staff, a mutual fund would be no different.
    murray t turtle likes this.
  5. When I was at CBOE much of the insider allegations came from MMs going upstairs to market regulation and complaining.
    murray t turtle and sle like this.