After five months of review, the SEC’s Office of Compliance Inspections and Examinations (OCIE) has released a Risk Alert regarding compliance and process protocols during the era of COVID-19. As the pandemic continues, investment management firms have been challenged to maintain the high-quality service and standards their clients and the SEC demand.
OCIE Identifies Six Areas of Concern
Firms should take time to review:
- protection of investors’ assets
- supervision of personnel
- practices relating to fees, expenses, and financial transactions
- investment fraud
- business continuity
- the protection of investor and other sensitive information
In this series, you’ll get a detailed breakdown of each of these six areas of concern.
Investment Fraud
Times of turmoil and crisis have always raised the possibility of investment fraud and the COVID-19 pandemic is no different. The SEC has already seen a significant rise in companies making dubious claims regarding detection, vaccines, and cures related to COVID-19 and has suspended trading of a number of companies. The best protection against investment fraud, as always, remains diligent research and caution.
Investment, operations, and compliance teams need to work together more than ever to develop risk controls that will raise red flags for the vigilant investment firm. With these team members working remotely, OpsCheck can fill a critical need to keep off-site staff apprised of issues as they arise and assist the collaborative effort to prevent high risk investments based on fraudulent claims.
Particular care should be given to companies promoting their shares in areas that are COVID 19 adjacent.
Don’t Ignore Red Flags
Be cautious with “safe” interest-bearing investments that target legislative stimulus fund recipients. Scrutinize loan deals for struggling businesses in the retail and manufacturing sectors. And watch out for funds that purport to raise money for charities or local communities struggling with COVID 19 issues.
While working with unregistered offerings that raise money from investors do exist, they should raise concerns when claiming high returns or if the parties involved are themselves unregistered. Inserting an added layer for review in firm investment risk controls is an easy step to take and can be handled immediately through the OpsCheck platform for firms that may still wish to consider these offerings.
Firms and investors who suspect fraud should contact the SEC and report the potential fraud.
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