ADVISORS AT OPPENHEIMERS & CO. CHARGED WITH MISLEADING INVESTORS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION  

Washington, D.C., March 11, 2013 — The Securities and Exchange Commission today charged two investment advisers at Oppenheimer & Co. with misleading investors about the valuation policies and performance of a private equity fund they manage.

An SEC investigation found that Oppenheimer Asset Management and Oppenheimer Alternative Investment Management disseminated misleading quarterly reports and marketing materials stating that the fund’s holdings of other private equity funds were valued "based on the underlying managers’ estimated values." However, the portfolio manager of the Oppenheimer fund actually valued the fund’s largest investment at a significant markup to the underlying manager’s estimated value, a change that made the fund’s performance appear significantly better as measured by its internal rate of return.

Oppenheimer agreed to pay more than $2.8 million to settle the SEC’s charges. The Massachusetts Attorney General’s office today announced a related action and additional financial penalty against Oppenheimer.

"Honest disclosure about how investments are valued and how performance is measured is vital to private equity investors," said George S. Canellos, Acting Director of the SEC’s Division of Enforcement. "This action against Oppenheimer for misleadingly writing up the value of illiquid investments is clear warning that the SEC will not tolerate lax disclosure practices in the marketing of private equity funds."

According to the SEC’s order instituting settled administrative proceedings, the Oppenheimer advisers marketed Oppenheimer Global Resource Private Equity Fund I L.P. (OGR) to investors from around October 2009 to June 2010. OGR is a fund that invests in other private equity funds, and it was marketed primarily to pensions, foundations, and endowments as well as high net worth individuals and families.

According to the SEC’s order, OGR’s largest investment — Cartesian Investors-A LLC — was not valued based on the underlying managers’ estimated values. OGR’s portfolio manager himself valued Cartesian at a significant markup to the underlying manager’s estimated value. OAM’s change in valuation methodology resulted in a material increase in OGR’s performance as measured by its internal rate of return, which is a metric commonly used to compare the profitability of various investments. For the quarter ended June 30, 2009, the portfolio manager’s markup of OGR’s Cartesian investment increased the internal rate of return from approximately 3.8 to 38.3 percent.

"Particularly in the current difficult fundraising environment that can incentivize private equity managers to artificially inflate portfolio valuations, firms must implement policies and procedures to ensure that investors receive performance data derived from the disclosed valuation methodology," said Julie M. Riewe, Deputy Chief of the SEC Enforcement Division’s Asset Management Unit. "Oppenheimer failed to implement such procedures and provided investors with misleading information about its valuation policies and performance numbers."

The SEC’s order found that former OAM employees made the following misrepresentations to potential investors:
The increase in Cartesian’s value was due to an increase in Cartesian’s performance when, in fact, the increase was attributable to the portfolio manager’s new valuation method.
A third-party valuation firm used by Cartesian’s underlying manager wrote up the value of Cartesian, which was untrue.
OGR’s underlying funds were audited by independent third-party auditors when, in fact, Cartesian was unaudited.
The SEC’s order also found that Oppenheimer Asset Management’s written policies and procedures were not reasonably designed to ensure that valuations provided to prospective and existing investors were presented in a manner consistent with written representations to investors and prospective investors.

Oppenheimer Asset Management’s conduct violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 and Section 206(4) of the Investment Advisers Act of 1940 and Rules 206(4)-7 and 206(4)-8. Without admitting or denying the findings, Oppenheimer agreed to pay a $617,579 penalty and return $2,269,098 to those who invested in OGR during the time period when the misrepresentations were made. Oppenheimer consented to a censure and agreed to cease and desist from committing or causing any future violations of the securities laws. The firm is required to retain an independent consultant to conduct a review of its valuation policies and procedures.

Oppenheimer will pay an additional penalty of $132,421 to the Commonwealth of Massachusetts in the related action taken by the Massachusetts Attorney General.

The SEC’s investigation, which is continuing, was conducted by Panayiota K. Bougiamas and Igor Rozenblit of the Asset Management Unit and Lisa Knoop. It was supervised by Valerie A. Szczepanik. The SEC acknowledges the assistance of the Massachusetts Attorney General’s office.

DODD-FRANK SWAPS CLEARING RULES HAVE BEGUN

FROM: COMMODITY FUTURES TRADING COMMISSION
CFTC Announces that Mandatory Clearing Begins

Washington, DC – Today, swap dealers, major swap participants and private funds active in the swaps market are required to begin clearing certain index credit default swaps (CDS) and interest rate swaps that they entered into on or after March 11, 2013. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) amended the Commodity Exchange Act (CEA) to require clearing of certain swaps. The Dodd-Frank Act also requires the Commission to determine whether a swap is required to be cleared by either a Commission-initiated review or a submission from a DCO for the review of a swap, or group, category, type, or class of swap. The clearing requirement determination does not apply to those who are eligible to elect an exception from clearing because they are non-financial entities hedging commercial risk.

"One of the most significant Dodd-Frank reforms begins implementation today," said CFTC Chairman Gary Gensler. "Central clearing lowers the risk of the highly interconnected financial system. It promotes competition in and broadens access to the market by eliminating the need for market participants to individually determine counterparty credit risk, as now clearinghouses stand between buyers and sellers."

As of today, swap dealers and private funds active in the swaps market began clearing certain CDS and interest rate swaps that they entered into on or after March 11. The clearing requirement applies to newly executed swaps, as well as changes in the ownership of a swap. The five swap classes that are required to be cleared include the swaps can be found here: See Related Link.

Market participants electing an exception from mandatory clearing under section 2(h)(7) of the CEA do not have to comply with the reporting requirements for electing the exception until September 9, 2013.

"This week’s implementation of mandatory clearing continues the process of implementing key goals of the Dodd-Frank Act," Chairman Gensler said. "It is an historic change for the markets that will benefit the public and the economy at large. This achievement is a real testament to the dedication and excellence of the CFTC staff working as a team and with other regulators, both domestic and international. I also would like to thank Commissioners Sommers, Chilton, O’Malia and Wetjen for their significant contributions to making the implementation of these reforms now a reality."

MAN SETTLES WITH SEC REGARDING WASH SALES TO MANIIPULATE STOCK PRICES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Charges Robert Crane for Market Manipulation

On February 26, 2013, the Securities and Exchange Commission filed a complaint charging Robert Crane, a former registered representative, with manipulating the market in two penny stocks-Argentex Mining Corporation and ERHC Energy Inc. The United States District Court for the Eastern District of Virginia entered the judgment to which Crane consented on March 4, 2013

The Commission's settled action, filed in federal district court for the Eastern District of Virginia, alleges that Crane executed six wash sales in June 2010 to create the false appearance of an active and liquid market for two securities. He placed his orders through the Internet for trades in three accounts at two brokerage firms. His trades resulted in no change of beneficial ownership in the stock he already owned. However, Crane did not profit from his scheme. The complaint alleges violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and the Court's order permanently enjoins Crane from violating those laws. The Court's order also provides for a penny stock bar against Crane. The Commission did not seek a penalty against Crane due to his sworn representations concerning his financial condition.

STATE OF ILLINOIS CHARGED WITH SECURITIES FRAUD

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., March 11, 2013 — The Securities and Exchange Commission today charged the State of Illinois with securities fraud for misleading municipal bond investors about the state’s approach to funding its pension obligations.

An SEC investigation revealed that Illinois failed to inform investors about the impact of problems with its pension funding schedule as the state offered and sold more than $2.2 billion worth of municipal bonds from 2005 to early 2009. Illinois failed to disclose that its statutory plan significantly underfunded the state’s pension obligations and increased the risk to its overall financial condition. The state also misled investors about the effect of changes to its statutory plan.

Illinois, which implemented a number of remedial actions and issued corrective disclosures beginning in 2009, agreed to settle the SEC’s charges.

"Municipal investors are no less entitled to truthful risk disclosures than other investors," said George S. Canellos, Acting Director of the SEC’s Division of Enforcement. "Time after time, Illinois failed to inform its bond investors about the risk to its financial condition posed by the structural underfunding of its pension system."

Elaine Greenberg, Chief of the SEC’s Municipal Securities and Public Pensions Unit, added, "Regardless of the funding methodology they choose, municipal issuers must provide accurate and complete pension disclosures including the effects of material changes to their pension plans. Public pension disclosure by municipal issuers continues to be a top priority of the unit."

According to the SEC’s order instituting settled administrative proceedings against Illinois, the state established a 50-year pension contribution schedule in the Illinois Pension Funding Act that was enacted in 1994. The schedule proved insufficient to cover both the cost of benefits accrued in a current year and a payment to amortize the plans’ unfunded actuarial liability. The statutory plan structurally underfunded the state’s pension obligations and backloaded the majority of pension contributions far into the future. This structure imposed significant stress on the pension systems and the state’s ability to meet its competing obligations – a condition that worsened over time.

The SEC’s order finds that Illinois misled investors about the effect of changes to its funding plan, particularly pension holidays enacted in 2005. Although the state disclosed the pension holidays and other legislative amendments to the plan, Illinois did not disclose the effect of those changes on the contribution schedule and its ability to meet its pension obligations. The state’s misleading disclosures resulted from various institutional failures. As a result, Illinois lacked proper mechanisms to identify and evaluate relevant information about its pension systems into its disclosures. For example, Illinois had not adopted or implemented sufficient controls, policies, or procedures to ensure that material information about the state’s pension plan was assembled and communicated to individuals responsible for bond disclosures. The state also did not adequately train personnel involved in the disclosure process or retain disclosure counsel.

According to the SEC’s order, Illinois took multiple steps beginning in 2009 to correct process deficiencies and enhance its pension disclosures. The state issued significantly improved disclosures in the pension section of its bond offering documents, retained disclosure counsel, and instituted written policies and procedures as well as implemented disclosure controls and training programs. The state designated a disclosure committee to assemble and evaluate pension disclosures. In reaching a settlement, the Commission considered these and other remedial acts by Illinois and its cooperation with SEC staff during the investigation. Without admitting or denying the findings, Illinois consented to the SEC’s order to cease and desist from committing or causing any violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933.

The SEC’s investigation was conducted by Peter K. M. Chan along with Paul M. G. Helms in the Chicago Regional Office and Eric A. Celauro and Sally J. Hewitt in the Municipal Securities and Public Pensions Unit. They were assisted by other specialists in the unit including Joseph O. Chimienti, Creighton Papier, and Jonathan Wilcox.

"PLASMA ENGINE" INVESTMENT SCHEME HALTED BY SEC

FROM: SECURITIES AND EXCHANGE COMMISSION

SEC HALTS "PLASMA ENGINE" INVESTMENT SCHEME OPERATED BY JOHN ROHNER AND HIS NEVADA COMPANIES

The Securities and Exchange Commission today announced an enforcement action previously filed under seal in federal court in Las Vegas. The SEC has obtained an emergency order to halt an investment scheme that has defrauded at least 98 people nationwide out of at least $1.4 million since 2009.

The SEC’s complaint alleges that Nevada resident John P. Rohner and his companies Inteligentry, Ltd., PlasmERG, Inc. and PTP Licensing, Ltd., have been operating a fraudulent investment scheme. Rohner and his companies solicited investors for the scheme by claiming that they have developed, tested and patented an operational "plasma engine" fueled by abundant and inexpensive noble gases (such as helium), which they claim will replace the internal combustion engine. Rohner and his companies claim that the engine is non-polluting and has unlimited uses to generate electricity in homes, businesses, boats, and aircraft. For example, Rohner told at least one investor that one of his plasma engines has been running a generator on a dairy farm for 18 months and he claimed on company websites that the pollution-free engine "can run for over 3 months on a $12 gas fill". As alleged in the complaint, Rohner originally offered securities in Iowa-based PlasmERG, Inc. from 2009 to early 2011, and from May 2011 to the present Rohner has offered securities in Nevada-based Inteligentry, Ltd., using PlasmERG and PTP Licensing as related business entities.

Rohner and his companies lured investors into purchasing stock by claiming that the companies would be worth billions of dollars when the plasma engine is publicly revealed, repeatedly promising to publicly show his operational engine at stockholder meetings and trade shows. However, the claims were and are entirely fictitious. Rohner and his companies have never run an engine fueled by noble gases, nor have they obtained patents relating to the engine or the plasma technology.

Rohner and his companies also made false and misleading statements to investors that Rohner has advanced degrees from the Massachusetts Institute of Technology and Harvard University, and that they have trademarks relating to the purported engine and its plasma process. As alleged in the complaint, these representations are false. Rohner has never attended or obtained degrees from MIT or Harvard, and has never been assigned a trademark related to the engine or its purported technology.

According to the SEC’s complaint, Rohner, Inteligentry, PlasmERG, and PTP Licensing used investor funds to pay Rohner’s personal expenditures as well as business expenses. The complaint alleges that a significant portion of the funds raised from investors was used for personal expenses, including among other things the purchase of a home in Iowa for Rohner and his wife, the purchase of vehicles for Rohner’s family members and Inteligentry employees, the purchase of home goods, and the payment of personal expenses including automobile repair services and insurance, medical services, and meals at restaurants.

None of the defendants charged in the SEC’s enforcement action has ever registered with the SEC to sell securities.

On March 7, 2013, the Honorable Gloria M. Navarro granted the SEC’s request for a temporary restraining order to prevent Rohner, Inteligentry, PlasmERG, and PTP Licensing from further engaging in the issuance, offer, or sale of any security in an unregistered transaction. The Court also granted the SEC’s request for an order freezing the assets of all the defendants, requiring accountings, and prohibiting the destruction or alteration of documents. The Court unsealed the action on March 8, 2013, at the SEC’s request.

The SEC’s complaint alleges that Rohner, Inteligentry, PlasmERG and PTP Licensing violated the antifraud provisions of the federal securities laws and that Rohner, Inteligentry and PlasmERG violated the securities registration provisions of the federal securities laws. Specifically, the complaint alleges Rohner, Inteligentry, and PlasmERG each violated Sections 5(a) and 5(c) of the Securities Act of 1933 (Securities Act), and that Rohner, Inteligentry, PlasmERG and PTP Licensing violated Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder; and that Rohner aided and abetted violations of Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5. The SEC seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest thereon, and civil monetary penalties against each defendant, and a bar prohibiting Rohner from serving as an officer or director of any public company.

GRIM'S REMARKS TO INVESTMENT MANAGEMENT INSTIITUE 2013

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Remarks to the Investment Management Institute 2013

by
Norm Champ, Director, Division of Investment Management
as delivered by
David W. Grim, Deputy Director, Division of Investment Management
U.S. Securities and Exchange CommissionNew York, NY
March 7, 2013
Introduction
Good morning. I am pleased to be here today on behalf of Norm Champ, Director of the Division of Investment Management. Norm very much wanted to be with you today, and I am very pleased to have the opportunity to step in for him and deliver these remarks on his behalf.

Before I begin, let me remind you that the views I express are my own and do not necessarily reflect the views of the Commission, any of the Commissioners, or any of my colleagues on the staff of the Commission.

As I said, it is a privilege to deliver Norm Champ’s keynote address at this year’s Investment Management Institute. It is a privilege because I have the opportunity to open up the conference on behalf of a number of seasoned and expert legal practitioners who are speaking to you today. They are very knowledgeable and highly regarded in their fields.

It is a privilege because I have the opportunity to hear from and interact with two prior Directors of the Division of Investment Management, each of whom used his time and energy in that job to shape the regulatory landscape for the benefit of investors.

But most of all, it is a privilege to be here today because we have an audience comprised of professionals who want to learn more about the law; improve your own legal skills; and take back practical, real-world lessons and implement them at your own firms and offices.

Programs of this type are always enriching and beneficial to those who are willing to take the time to improve their own legal skills and add to their base of knowledge. Both Norm and I genuinely commend you for it.

* * *

Norm Champ has been on the job as Director of the Division of Investment Management for eight months. And I have been serving as Deputy Director for nearly two months.

For those of you who are not familiar with the role of the Division of Investment Management at the SEC, our mission is to work for American investors by:
protecting investors
promoting informed investment decisions and
facilitating appropriate innovation in investment products and services
through regulating the asset management industry.

The issues we work on are interesting, but more importantly, they have great consequence for America’s investors. I would hazard that nearly everyone in this room has invested in a mutual fund, an ETF or another investment product regulated under statutes administered by the Division of Investment Management.

The rules we help construct; the disclosure we review; and the new products we analyze have an impact on you and on millions of American investors like you. We have a lot of responsibility on our plate. And we take it very seriously.

Regulatory Initiative Process

What most SEC-watchers are always interested in hearing about is rulemaking activity, so, on behalf of Norm, I plan to focus on that. But that is in no way intended to diminish the important disclosure review; exemptive applications analysis; data review; and development of legal guidance that the Division of Investment Management performs.

Like the rest of the SEC, our Division is focused on implementation of our statutorily mandated rulemaking under the Dodd-Frank Act and the JOBS Act. In most cases, however, the bulk of statutorily required rulemaking that affects entities regulated within the Division of Investment Management’s jurisdiction is either complete, such as the required registration of advisers to private funds, or is being led by other parts of the agency and we are serving as consultants to assure that the asset management industry is covered consistently, such as in the general solicitation rules. In other areas, such as the Commission’s review of the standards of conduct and regulatory requirements that apply to broker-dealers and investment advisers, we are partnering with other parts of the SEC and are not the sole lead.

Where the Division of Investment Management has, under Norm Champ’s leadership, spent a lot of time focusing our energy and trying to become smarter, more strategic and more targeted, is on so-called "discretionary" or non-mandated rulemaking initiatives.

The Division of Investment Management, in close consultation with the Chairman and the Commissioners, went through a very thoughtful and deliberate approach to analyze potential regulatory initiatives.

In this era of limited budgets, one of my goals since taking the helm of the Division has been to ensure that we are allocating our resources wisely. Toward this end, Norm Champ asked the staff to take a fresh look at policy initiatives with a view to analyzing those matters based on four factors. These factors also will be used to analyze potential policy initiatives going forward.

The first factor is identification of the risk to be mitigated or the problem to be solved. This is key to the discussion of any policy initiative.

The second factor is the urgency associated with a particular initiative. Urgency may arise from risks to investors, registrants, efficient markets, or capital formation.

The third factor is the potential impact of an initiative on investors, registrants, capital formation, efficient markets, and the Division’s and SEC’s operational efficiency.

The fourth and final factor is the resources associated with a policy initiative. As with all our activities and projects, senior staff in the Division need to assess how best to allocate scarce resources.

We’re looking at factors that we believe would further the SEC’s mission as well as the impact that various regulatory initiatives would have on investors, capital formation, and efficient markets. The analysis has helped to inform the Chairman, collaborating with the Commissioners, in her determination of which regulatory priorities the Commission will pursue.

At this point you are probably asking yourselves what specific future regulatory priorities came out of this process. There are three short term and five longer term core priorities.

Short-Term Regulatory Priorities

Potential Money Market Mutual Fund Reform

The first short-term regulatory priority is money market funds, which may be the most high-profile issue on the Division’s plate these days.

Late in 2012, the SEC’s economists published a significant study on money market funds that responded to questions posed by three SEC Commissioners. The results of that study have served as a catalyst for renewed and energized focus by the SEC staff and Commissioners on additional structural reform of money market funds.

At the direction of the Chairman, the staff is engaged with the Commissioners and hard at work on developing a money market fund reform recommendation.

Identity Theft Red Flags Rules

The second of the Division’s short-term rulemaking priorities involves rules to detect and prevent theft of the identities of mutual fund investors and clients of asset managers. The growth and advancement of information technology and electronic communication have made it increasingly easy to collect, maintain and transfer personal information about individuals. Advancements in technology, however, also have led to increasing threats to the integrity and privacy of personal information.

In February 2012, the SEC proposed rules and guidelines jointly with the CFTC to require many of the entities we regulate to establish identity theft detection and prevention programs. These proposed rules were designed to help protect individuals, and help individuals protect themselves, from the risks of theft, loss, and abuse of their personal information.

The rules would give effect to the transfer of authority, under the Dodd-Frank Act, from the Federal Trade Commission to the SEC and CFTC for responsibility for overseeing the identity theft and protection programs of the entities we regulate. The comments on the proposed rules were generally supportive, and the Division is working on final identity theft red flags rules to recommend to the Commission.

Valuation Guidance

Striking an appropriate and accurate net asset value each trading day is one of the most important, and often one of the most challenging, functions that mutual funds and other investment companies perform. It is one thing to identify prices for a large cap equity fund that is investing in frequently-traded, highly-liquid securities. It is quite another for a fund that is heavily invested in thinly-traded bonds, derivative instruments and other securities that have no readily-available market price to draw from.

The Division is working to provide the fund industry, fund directors, and the public with guidance under the Investment Company Act regarding funds’ and fund directors’ valuation responsibilities. In addition to wanting to assure accuracy of mutual fund transaction prices, valuations also affect performance claims. Furthermore, fund advisers’ fees are usually calculated and paid based on asset valuations. There is a natural incentive for advisers to want those valuations to be as high as possible.

Inaccurate valuations will lead to inaccurate performance claims; inaccurate fee payments; inaccurate transaction prices and ultimately mis-pricing can muddy the integrity of the fund industry. When it comes to valuation, the Division of Investment Management believes that we need to level set requirements and make sure funds and their directors are aware of prudent practices that will lead to fair and accurate valuations.

In developing valuation guidance, the staff recognizes the benefit of input from the public and those who work hard every day to strike an accurate NAV. We therefore are exploring ways to assure that the staff and the Commission get meaningful public input on any valuation guidance.

Longer-Term Regulatory Initiatives

Each of the three short-term regulatory priorities I mentioned is actively being worked on by staff in the Division of Investment Management. In addition, there are five longer-term rulemaking projects that we are scoping the terms of and allocating resources toward. These projects are in a less advanced stage, but we want to share them so that investors, funds and advisers, taxpayers and others are aware of where we are focused and devoting resources.

Variable Annuity Summary Prospectus

A few years ago, the Commission adopted a streamlined "summary prospectus" for mutual fund investors. That document contains key information about fund investment objectives and strategies, risks, and fees and provides the ability to "click through" or request more detail for those who want it. This initiative was a revolution in communicating to investors the core information they most want while simultaneously making more detailed information readily accessible to investors, intermediaries, the financial press, and others who are interested.

The Division is beginning work on a rule that would create a similar summary prospectus for variable annuities, a type of hybrid insurance and investment product. The insurance benefits offered by these products, and the limitations on those benefits, are often complex; their costs can be difficult to understand; and they frequently offer a wide array of investment options. These and other factors often result in disclosure that is long and difficult to understand. Our goal is to facilitate the communication of concise, user-friendly information to investors considering variable annuities and enhance the transparency of the benefits, risks, and costs of these products.

ETF Rule

In 2008, the Commission proposed a rule that would basically codify exemptive relief that we routinely grant for exchange-traded funds. This rule would allow ETFs to operate without obtaining individual exemptive relief -- a process that, while important for novel products, can be costly and time-consuming.

If ETFs of new sponsors could come to market without having to obtain their own exemptive relief, the Division could reallocate staff resources from the review of "plain vanilla" applications to more novel applications. The Division has renewed its efforts to pursue implementation of this type of ETF rule.

Enhancements to Fund Disclosures about Operations and Portfolio Holdings

As part of the money market fund reforms adopted by the SEC in 2010, the SEC required new monthly reporting on portfolio holdings by those funds to both investors and the SEC. This new data has been invaluable. Some have called it a game-changer. We are able to use it to monitor trends, identify outliers and better inform our rule-writing efforts.

Many believe we need similar structured data reporting for other mutual funds and investment companies. The patchwork of outdated data collection and disclosure forms is not working, and the staff is examining how to enhance and streamline our data collection efforts.

The purpose of this initiative is to improve the quality and usefulness of information that funds provide to investors and to the SEC, and to eliminate duplicative filings or disclosures. It could make the SEC a better regulator and it could make investors better informed.

Review of the Rules that Apply to Private Fund Advisers

In 2012, approximately 1,500 advisers to hedge funds and other private funds registered with the Commission as investment advisers as a result of the Dodd-Frank Act. Private fund advisers now account for nearly 40% of our registered investment advisers.

Given the increase in the number and variety of registered private fund advisers, the Division is reviewing Advisers Act rules for aspects that should be updated to address investor protection concerns and the business models of private fund advisers.

Derivatives Concept Release

And finally, the Division also continues to consider the numerous issues raised in the Commission’s 2011 concept release on funds’ use of derivatives. When the Investment Company Act was enacted in 1940, it did not contemplate funds investing in derivatives as many do today. Indeed, the use and complexity of derivatives have grown significantly over the past two decades.

Over the years, the SEC and the Division have addressed a number of issues raised by the use of derivatives on a case-by-case basis. The purpose of the derivatives concept release was to elicit public input on a variety of regulatory issues raised by funds’ use of derivatives, including valuation, diversification and leverage limitations.

The staff is now analyzing the feedback on the concept release to assess whether, and if so how, the mutual fund and investment company regulatory regimes should be revised to adequately account for the role of derivatives and incorporate more targeted requirements.

Conclusion

Having just gone through our priorities list, it feels a little daunting. But it is important work and these are issues that must be tackled.

In addition, neither Norm Champ nor I would not want to leave you with the misimpression that rulemaking is all we do. The reality is far from it. We have numerous staff devoted to reviewing disclosure; answering investor and industry questions; helping to shape enforcement cases and examination priorities; analyzing requests for exemptive relief and no-action guidance. It is this entire body of work that makes the SEC an effective regulator.

And as Director of the Division of Investment Management, Norm Champ has been committed to continuous improvement in all phases of the Division’s work – not just the rulemaking phase. Norm and I are hopeful, however, that the remarks today showed the benefit of a coordinated and thorough analysis of potential policy initiatives. And we further hope that our approach leads to effective results and achievable goals.

We look forward to the challenging work we have ahead of us. And we look forward to a continued dialogue with our stakeholders: investors; taxpayers; industry leaders and, of course, legal practitioners such as yourselves.

Thank you.