CI hedge fund managers answer SEC proposals
After the US Securities and Exchange Commission (SEC) failed to stop Madoff’s Ponzi scheme, SEC’s Inspector General proposed to increase the regulation of hedge funds and other investment advisors, and hedge fund experts in the Cayman Islands provided positive response on this proposal.
By words of the former Head of the Investment Services Division of the Cayman Islands Monetary Authority (CIMA) Don Seymour, these are “meaningful suggestions”, which, if implemented, would enhance investors protection and respect the privacy of private investment funds, “in the contrast to recent disclosure proposals put forward locally by individuals.”
SEC put forward the following recomendations:
- to mandate that hedge funds and investment advisers use an “independent custodian”, to maintain investments in separate accounts. This is already required for offshore mutual funds, and it reduces the ability of an investment adviser to use the proceeds invested by new investors to make payments to old ones.
- to require hedge funds and investment advisors to pledge that they conducted due diligence on their advice.
- to embolden the US auditing watchdog agency, Public Company Accounting Oversight Board, with new authority to audit reports prepared by domestic and foreign accounting firms. The Cayman Islands already requires all CI-registered private hedge funds to have an annual audit performed by an auditor approved by CIMA.