Editor column

Article Type: Editor column From: Journal of Investment Compliance, Volume 10, Issue 2

We start this issue with an article by Robert Robertson and Joseph Kelly on the final SEC rule amendments concerning the summary prospectus for mutual funds, which is intended to improve mutual fund disclosure by providing investors with key information in a clear and concise format as well as provide a means of delivering more detailed information via the internet. Then we have three articles on protection against and dealing with the tax consequences of hedge fund fraud, a particularly relevant topic today in light of the Madoff scandal. The Madoff operation was not actually a hedge fund, but the fraud that occurred was typical of what can and does happen with hedge funds. Ken Evola and Nicole O’Grady outline the types of red flags for which investors should watch and recommend due diligence measures for alternative investments. Roger Lorence describes the types of losses investors have suffered in hedge funds and funds of funds, explains the types of relief the US Internal Revenue Service provides, and recommends steps investors should take in filing claims. Majed Muhtaseb then provides a case study of hedge fund fraud and proposes a hedge fund information depository to help hedge fund stakeholders with information that could potentially warn them of fraud. Continuing with hedge funds, Richard Goldman, Robert Leonard, Matthew Anderson Gray, and Stephen Vecchio summarize two separate reports on best hedge fund industry practices issued in January by the Asset Managers’ Committee and the Investors’ Committee of the President’s Working Group on Capital Markets. Gabriel Opromolla, a regular contributor to this journal on Italian investment company regulations, explains the Bank of Italy’s implementing regulation on hedge funds pursuant to the so-called Anti-Crisis Decree aimed at stabilizing the Italian economy during the current financial turmoil; the implementing regulation includes measures to ensure transparency, the orderly conduct of trading, and the protection of investors. Brian Rubin and Christian Cannon summarize a study they conducted based on SEC administrative and FINRA litigated decisions over a recent one-year period to determine the relative success of respondents in litigating or settling with SEC administrative law judges and FINRA panels, concluding that winning on liability is difficult but arguing for lower sanctions is more often successful. Daniel Crowley, Bruce Heiman, Charles Miller, Philip Morgan, Mark Perlow, David Tang, and Karishma Page summarize a report issued in January by the Group of Thirty that recommends a massive, globally coordinated restructuring of the legislative and regulatory system that governs the financial services industry and provides an indication of the likely direction of regulatory initiatives in the United States and elsewhere in the near future. Then Matthew Zolnor analyzes the internal control reporting requirements imposed by the much maligned Sections 302 and 404 of the Sarbanes-Oxley Act of 2002. He applies the Coase Theorem, which posits that once transaction costs are introduced a law stands to either facilitate or impede mutually beneficial transactions, and concludes that Sections 302 and 404 do not provide particularly useful information to investors, particularly in light of the burdensome costs they impose on reporting companies. We conclude this issue with our usual summary of selected FINRA regulatory notices and disciplinary actions.

Henry A. DavisEditor