SEC Audit

[Guest Kim S.]

What is an SEC audit? Had DOL audits, had IRS audits but this is a new one. They've only given one week to pull together what they want to see.

[E as in ERISA]

I never heard of an SEC audit of a benefit plan before (is there any significance in the fact that you are in Houston, TX?!) Do you have any info to share about what they are asking for?

[Guest Kim S.]

Well the SEC audit is not for the pension side, this is a small family owned TPA firm that the owner does some trading for individuals and so it is that side of the company they are auditing.

[Guest kgsingletary]

The broker-dealer/investment company that is holding the owner's securities license should be able to provide assistance/guidance.

Good Luck!

[Demosthenes]

Best bets. They're looking to see if there has been any correlation of trading between the individual bokerage accounts, the pension side, and/or the TPA owners personal holdings.

For example, a publically held firm makes a sizable contribution to its plan for the purchase of stock on the open market. Did the individual side show a trade in this stock prior to the plan's purchase? The TPA would be presumed to know of the pension side buy and there would be a lag between the knowledge that a buy was coming, presumably pushing the price up, and the actual purchase. Front running if it's done for a client, insider trading if it's done for the owner of the TPA firm.

The same scenario can occur in a variety of circumstances if the TPA excercises discretion over the assets in either or both sides of the house.

It's also possible that they are looking at a client's account, one where the client is in both a plan participant and has an individual account. A lot of rk systems don't have adequate controls over the identification of insiders, a trade in an individual account that would be a blatant violation could be done inside the plan and go unnoticed.

Somewhere, somehow, the SEC believes there to be a possible link between the individual accounts and one or more plans on the pension side.

Of course, it could be just a heavy handed government agency throwing its weight around to demonstrate their increased watchfulness in the wake of the big E et al.

[mbozek]

Front running is a regulatory problem for large brokerages and investment banks because of the large amounts of contributions by publicly traded companies and confidential information that brokers have access to. The type of firm described in the thread does not seem to be a candidate for front running unless it is trading in thinly held companies with low daily tarading volume and unusual volitality in the stock price.