From the article, “Ponzi Scheme Charges Against Adviser Make the Case for Effective Monitoring,” published in the February 2, 2015 issue of ACA Insight.
© 2015 ACA Insight and ACA Compliance Group. All rights reserved. Reproduced with written permission of the publisher.
“The CCO should be an integral member of the team standing on the firm’s control deck,” said Eaton & Van Winkle partner Paul Lieberman, ensuring that, among other things:
- Investors are suitable for the investments planned;
- Trading orders are being properly executed and the paperwork is properly completed;
- Trading is carefully monitored to ensure that fund fees, both management and performance, conform with disclosures made in the offering document; and
- Bank statements and checks written and deposited by the fund are valid and accounted for.
Controls should be placed on the ability to move money, said Kanter. “Require multiple sign-offs if the wires or checks are for more than a certain amount.”
In addition, before a fund becomes operational, there should be a preparatory meeting involving the CCO, the principals involved and legal counsel to discuss all factors pertaining to the fund.
Those factors include investment strategy, whether the fund accepted suitable investors, and whether the firm’s administrative infrastructure can handle the back office, trade processing, and the receipt and deposit of client and investor funds (not only trade settlements and expense/fee payments, but investor subscriptions and redemptions both into and out of the fund), among other things, Lieberman said.
“Everyone should be concerned with the accuracy and completeness of disclosures in the private placement memorandum and aware of what is going on in the fund trading and finances, including the fees charged,” he said.