SEC Rule for Surprise Audits Eased back After Successful Lobbying?

December 30, 2009

(ChattahBox) – The Securities and Exchange Commission approved a rule last week requiring some investment advisors who manage customer funds to undergo annual surprise audits. The rule prompted by the Bernard Madoff scandal, requires certain SEC-registered advisers who have custody of clients’ assets to retain an independent public accountant to conduct an annual surprise exam to verify that the money actually exists. If funds are found missing during the process, the accountants must notify the SEC.

That all sounds good but more than 9,000 advisers would have been subject to enhanced oversight under the original proposals, but now fewer than 2,000 will face surprise exams and other audits. SEC Commissioner Luis Aguilar said he considers the rules as an “incremental step” toward protecting investors, noting that 1,859 out of the universe of 11,300 investment advisers will be subjected to audits.  Why the incremental step though when Mary Schapiro, chairman of the U.S. Securities and Exchange Commission,in May proposed that almost 10,000 money managers undergo surprise inspections to make sure they weren’t ripping off clients. Well according to Bloomberg, revision came after lobbying by fund companies, including executives from T. Rowe Price Group Inc., who met with Schapiro, and Legg Mason Inc., who met with another commissioner, SEC records show.  It’s the fourth rule that Schapiro has announced and then had to scale back on or hasn’t implemented including new restrictions on short selling and new powers for shareholders to nominate directors that have been long delayed.


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