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
# posted by Tom @ 7:44 PM 
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