The SEC's Director of Enforcement believes that improper practices concerning fee arrangements and disclosures are common in the private equity industry (and, one might add, in the collection of brokerage fees by firms not registered as broker-dealers). For that reason, every private equity adviser should consider all of its expense allocation and fee arrangements in order to ensure that the arrangements were made correctly and have been disclosed fully. Firms that fail to examine the…

Several articles in the Economic Policy Review take the position that the cultural (and other organizational and management) issues that arise at banks are not fundamentally different from those that arise at other large institutions (including governments), but may be different in degree. In an article that is worth reading, Ohio State University Banking and Business Professor Rene M. Stulz frames the position in the following terms: "One might be tempted to conclude…

The question that the case raises is not whether the strategy of avoiding a buy-in of a failed short delivery is legal - the SEC had previously established that it viewed the "buy [stock]-write [put option]" strategy, which is not inherently illegal, as improper when used as a device to evade, or in this case, to abet the evasion of, the requirement to buy-in failures to deliver on short sale trades. The question rather is who has responsibility to…

Imposing reporting requirements just adds more cost on non-dealers. Regulators should not underestimate the operational difficulty for end users of having to develop procedures and systems in order to comply with new operational requirements. Any individual new requirement may seem trivial to the regulator who imposes it, but the number of regulators is very numerous, and the number of regulations even more so. The cost burdens of so many regulators, rules and requirements…