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This analysis was provided by Zurich-based due diligence service provider SwissAnalytics Ltd.

Regulatory Complaints are informative, but often too late

• Regulatory complaints can usually only serve as an inspection after the "house has already been burnt to the ground" rather than a timely fire detector or an effective firefighter. This caused the SEC to look into its own proceedings, e.g. in the Madoff case as well as in the Westridge case.
• Regulatory complaints’ inability to timely prevent damage is caused by:
  • Limited resources versus the large universe of managers and strategies
  • Limited specialization and expertise for detailed understanding of the underlying operations
  • Predominantly legal backgrounds of examiners and enforcement staff
  • Lack of verification of information provided by investment managers as well as insufficient follow up on hints and red flags.

  This means that:

  • An investment advisor’s registration with a regulator is no substitute for proper, pro-active due diligence.
  • Regulatory complaints and investigations of failure provide important insights into what structures and circumstances have facilitated fraud and misconduct as well as into typical cover ups employed by the culprits.
  • By carrying out thorough due diligence warning signs can be identified, which should be investigated further while seeking to address areas of......................

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