The SEC today adopted new regulations aiming to implement key provisions of the recent Dodd-Frank Act, including some provisions that may aid in the future detection of ponzi schemes. Until the Dodd-Frank Act, many private advisers overseeing large asset bases were largely excluded from regulatory scrutiny.
Among the new requirements include the mandatory disclosure by advisers to private funds of basic organization information about each fund under management including size and ownership, and identification of individuals/entities providing key tasks for the fund such as auditors, custodians, administrators, and marketers. Additionally, funds will have to disclose the use of practices that may present a potential conflict of interest, including the use of compensation for client referrals and the recent focus on the use of soft dollars.
The new regulations offer much-needed transparency that arguably will result in better regulatory oversight and faster detection of questionable business practices. Proponents argue that warning signs, such as the use of a a 'mom-and-pop' auditor in a multi-billion dollar fund (see Madoff) or consistent out-performance of market indices, will be much more visible with the enactment of the regulations.
One potential limitation of the new regulations is their inapplicability to advisers of private funds with less than $100 million in assets. Such funds would be exempt unless they agree to voluntarily register with the SEC. The new regulations are currently scheduled to take effect March 30, 2012.