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Matthias Knab, Opalesque for New Managers:

The SEC's Office of Investor Education and Assistance has issued an investor alert warning that fraudsters are exploiting a structural quirk of the U.S. adviser regime: the exempt reporting adviser (ERA) filing. Because ERAs appear on SEC systems while not being registered with the Commission, a filing alone has become a cheap and convincing badge of legitimacy.

The alert, published on 27 August, makes the central point bluntly: an ERA is not registered with the SEC. An ERA is an investment adviser that advises only private funds - hedge funds, venture capital funds and private equity funds - and legally cannot provide investment advice directly to individual investors. The SEC does not issue certificates to ERAs, or to registered advisers for that matter, and does not review an ERA's abilities or qualifications.

ERAs are required to report some information on Form ADV but do not complete all sections in the way registered advisers must. They sit outside a number of the regulations designed to protect investors, though they remain subject to the same anti-fraud prohibitions.

38 entities charged

The alert accompanies a sweep of enforcement actions agai......................

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