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U.S. Securities and Exchange Commission

SEC Alerts Compliance Officers About Deficiencies and Weaknesses Found During Recent Compliance Examinations


Washington, D.C., July 22, 2008 — The Securities and Exchange Commission staff today released a new ComplianceAlert letter identifying common deficiencies and weaknesses that SEC examiners have recently found during compliance examinations of firms that are registered with the SEC. The ComplianceAlert is intended to foster robust compliance in the securities industry by providing information about deficiencies and encouraging chief compliance officers to take steps to address any similar issues at their firms.

The SEC's Office of Compliance Inspections and Examinations conducts compliance examinations of investment advisers, investment companies, broker-dealers, transfer agents and other types of SEC-registered firms to determine whether they are in compliance with the federal securities laws and regulations. The SEC staff last year issued its first ComplianceAlert letter to describe compliance issues and deficiencies found in examinations and to encourage firms to review compliance in those identified areas and implement improvements as appropriate.

"Our June 2007 ComplianceAlert was very well-received by industry compliance and legal professionals," said Lori Richards, Director of the SEC's Office of Compliance Inspections and Examinations. "Many industry compliance staff told us that, after reading it, they reviewed their firms' practices in the areas we noted and took steps to ensure that their firms' practices were fully compliant. By highlighting our recent examination findings in this way, we expect that this second ComplianceAlert will be similarly helpful to industry firms that are seeking to be proactive in addressing compliance risks."

The new ComplianceAlert letter describes examination findings in several areas:

  • Personal trading by investment advisory employees.
  • Soft dollar practices by advisers.
  • Mutual funds' proxy voting practices.
  • Valuation and liquidity issues for high-yield municipal bond funds.
  • "Free lunch" sales seminars.
  • Broker-dealers' valuation and collateral management processes.
  • Issues identified at broker-dealers affiliated with insurance companies.
  • Supervision of solicitations for advisory services.
  • Use of mortgage financing as credit for the purchase of securities.
  • Broker-dealers' supervisory and compliance controls over offices of supervisory jurisdiction.
  • Transfer agents' practices regarding "lost securityholders"

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Modified: 07/22/2008