Saturday, August 27, 2005
More on NASD Attack on Retail HF Sales
August 25: Operational Risk - NASD Investigates Hedge Fund Sales Practices
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Location: New York
Author: Ellen J. Silverman
Date: Thursday, August 25, 2005
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A top NASD official said on Wednesday that they have launched an investigation into brokers selling hedge funds to individual investors without alerting them to the potential risks.
Hedge funds have long been viewed as the domain of wealthy “accredited” investors and institutions with a bigger appetite for risk. But they’ve come downstream in recent years, as a slew of new products have flooded the marketplace. “The marketing and sales of hedge funds to individual investors has been an ongoing focus of the NASD,” said Barry Goldsmith, executive vice president of enforcement at the NASD, in a prepared statement. “We are continuing to look at issues in this but cannot comment on any specifics.”
Goldsmith’s remarks came in response to a Bloomberg wire report that the broker watchdog sent letters of inquiry to at least 10 brokerage houses, including Citigroup, Merrill Lynch and UBS . The NASD reportedly asked the firms what type of cautionary disclosures were made to investors when selling hedge funds that carried minimums of $50,000 or less. The firms were also asked if they paid brokers sales incentives to pitch certain hedged vehicles. The NASD reportedly said that the investigation should not be interpreted as a sign that examiners have concluded that the targeted firms violated securities laws.
This isn’t the first time hedge fund sales practices have drawn attention from regulators. In October 2004, the NASD slapped Citigroup’s brokerage unit with a $250,000 fine for distributing hedge fund sales literature that didn’t adequately explain risks or disclose performance properly. In April of that year, Altegris Investments was penalized $175,000 for similar practices. In that case, the NASD censured and fined the company’s chief compliance officer $20,000 for failing to adequately supervise the firm’s advertising practices.
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Article Printed From RiskCenter.com
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Location: New York
Author: Ellen J. Silverman
Date: Thursday, August 25, 2005
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A top NASD official said on Wednesday that they have launched an investigation into brokers selling hedge funds to individual investors without alerting them to the potential risks.
Hedge funds have long been viewed as the domain of wealthy “accredited” investors and institutions with a bigger appetite for risk. But they’ve come downstream in recent years, as a slew of new products have flooded the marketplace. “The marketing and sales of hedge funds to individual investors has been an ongoing focus of the NASD,” said Barry Goldsmith, executive vice president of enforcement at the NASD, in a prepared statement. “We are continuing to look at issues in this but cannot comment on any specifics.”
Goldsmith’s remarks came in response to a Bloomberg wire report that the broker watchdog sent letters of inquiry to at least 10 brokerage houses, including Citigroup, Merrill Lynch and UBS . The NASD reportedly asked the firms what type of cautionary disclosures were made to investors when selling hedge funds that carried minimums of $50,000 or less. The firms were also asked if they paid brokers sales incentives to pitch certain hedged vehicles. The NASD reportedly said that the investigation should not be interpreted as a sign that examiners have concluded that the targeted firms violated securities laws.
This isn’t the first time hedge fund sales practices have drawn attention from regulators. In October 2004, the NASD slapped Citigroup’s brokerage unit with a $250,000 fine for distributing hedge fund sales literature that didn’t adequately explain risks or disclose performance properly. In April of that year, Altegris Investments was penalized $175,000 for similar practices. In that case, the NASD censured and fined the company’s chief compliance officer $20,000 for failing to adequately supervise the firm’s advertising practices.
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Article Printed From RiskCenter.com
Thursday, August 18, 2005
NASD Targeting Big Wirehouse Retail HF Sales
NASD probing broker hedge-fund sales
Regulator focusing on sales to individual investors
By Alistair Barr, MarketWatch
Last Update: 12:29 PM ET Aug. 17, 2005
SAN FRANCISCO (MarketWatch) -- The National Association of Securities Dealers said Wednesday that it's investigating brokers' sales of hedge funds to individual investors.
"The marketing and sales of hedge funds to individual investors has been an on-going focus of NASD," said Barry Goldsmith, executive vice president of enforcement at the NASD, in a statement. "We are continuing to look at issues in this area but cannot comment on any of the specifics."
Goldsmith's remarks came after the Bloomberg wire service reported that the regulator sent letters in June to about 10 brokerage firms including Citigroup Inc. (C: news, chart, profile) , Merrill Lynch & Co. (MER: news, chart, profile) and UBS AG (UBS: news, chart, profile) inquiring about sales practices.
The NASD asked the firms what warnings they gave investors when selling hedge-fund products with minimum investments of $50,000 or less and whether they paid brokers sales incentives, Bloomberg reported.
The NASD said in its letter that the probe should not be construed as a sign that investigators have concluded that the firms violated rules or securities laws, the report added, citing a copy of the June 22 letter.
NASD spokesman Tom Holloman declined to comment on the letter or on which companies are being investigated.
Hedge funds have traditionally been been sold to wealthy individuals and institutions and sported minimum investment levels of $1 million or more. But new products have been developed in recent years with greatly reduced thresholds.
Merrill introduced a registered fund of hedge funds called Multi-Strategy Hedge Opportunities in late 2004 that invests in a range of underlying managers and has an investment minimum of $25,000. See full story.
NASD investigators are looking for evidence that the firms tried to sway nonprofessional customers to make unsuitably risky or expensive investments, Bloomberg said.
The NASD has cracked down on firms over hedge-fund sales practices in the past.
In October 2004, the agency fined Citigroup's brokerage unit $250,000 for distributing hedge-fund literature that didn't adequately explain risks or disclose performance properly. See full story.
Earlier that year, the NASD levied a $100,000 penalty against Turner Investments Distributors and charged Altegris Investments $175,000 for similar practices.
Alistair Barr is a reporter for MarketWatch in San Francisco.
Regulator focusing on sales to individual investors
By Alistair Barr, MarketWatch
Last Update: 12:29 PM ET Aug. 17, 2005
SAN FRANCISCO (MarketWatch) -- The National Association of Securities Dealers said Wednesday that it's investigating brokers' sales of hedge funds to individual investors.
"The marketing and sales of hedge funds to individual investors has been an on-going focus of NASD," said Barry Goldsmith, executive vice president of enforcement at the NASD, in a statement. "We are continuing to look at issues in this area but cannot comment on any of the specifics."
Goldsmith's remarks came after the Bloomberg wire service reported that the regulator sent letters in June to about 10 brokerage firms including Citigroup Inc. (C: news, chart, profile) , Merrill Lynch & Co. (MER: news, chart, profile) and UBS AG (UBS: news, chart, profile) inquiring about sales practices.
The NASD asked the firms what warnings they gave investors when selling hedge-fund products with minimum investments of $50,000 or less and whether they paid brokers sales incentives, Bloomberg reported.
The NASD said in its letter that the probe should not be construed as a sign that investigators have concluded that the firms violated rules or securities laws, the report added, citing a copy of the June 22 letter.
NASD spokesman Tom Holloman declined to comment on the letter or on which companies are being investigated.
Hedge funds have traditionally been been sold to wealthy individuals and institutions and sported minimum investment levels of $1 million or more. But new products have been developed in recent years with greatly reduced thresholds.
Merrill introduced a registered fund of hedge funds called Multi-Strategy Hedge Opportunities in late 2004 that invests in a range of underlying managers and has an investment minimum of $25,000. See full story.
NASD investigators are looking for evidence that the firms tried to sway nonprofessional customers to make unsuitably risky or expensive investments, Bloomberg said.
The NASD has cracked down on firms over hedge-fund sales practices in the past.
In October 2004, the agency fined Citigroup's brokerage unit $250,000 for distributing hedge-fund literature that didn't adequately explain risks or disclose performance properly. See full story.
Earlier that year, the NASD levied a $100,000 penalty against Turner Investments Distributors and charged Altegris Investments $175,000 for similar practices.
Alistair Barr is a reporter for MarketWatch in San Francisco.
