SEC To Crack Down On The $76 Billion Alternative Mutual Fund Market

sec-cracks-down-secondary-marketsNew York (HedgeCo.Net) – Securities and Exchange Commissioner Luis Aguilar yesterday stated that the commission is having a closer look at the alternative mutual fund market, which grew from about $76 billion in assets at the end of 2009 to over $311 billion in assets by the end of 2014.

“The growth of this market was fueled by the growing interest in the retail market.” Aguilar said at the annual North American Securities Administrators Association conference. “An investor’s constant quest for the next big thing plays right into the hands of fraudsters, who often use the complexity of new products to hide their schemes.”

The SEC enforcement staff has been busy. In 2014, the SEC worked with criminal authorities to file more than 120 criminal cases; and obtained more than $2.7 billion in disgorgement and almost $1.4 billion in penalties.

    • State securities regulators received more than 9,600 complaints from aggrieved investors and conducted more than 5,300 investigations;
    • Regulators undertook about 2,200 administrative, civil, and criminal enforcement actions involving more than 3,000 respondents and defendants;
    • Reported criminal actions that resulted in more than 1,800 years of incarceration — the highest in the last five years — and more than 670 years of probation; and
    • Imposed more than $600 million in investor restitution orders, and monetary fines and penalties of more than $70 million.

“Complex securities” refer to securities that often involve embedded derivatives and may include equity-indexed annuities, leveraged and inverse exchange-traded funds (ETFs), principal protected notes, and reverse convertibles. Complex securities can also include exchange-traded products, or ETPs, and alternative mutual funds.

“The protection of retail investors is paramount and demands immediate attention.” Aguilar said. “A bedrock principle of the federal securities laws is that issuers must be prepared to disclose all material risks presented by their securities in a way that investors can understand. Complex products that lack such disclosures run counter to this principle. That’s particularly true when the products are targeted to retail investors.”

Alex Akesson
Editor for
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