Following up on his earlier letter to FINRA regarding a large hedge fund, Senator Charles Grassley (R-Iowa) asked the SEC to explain how the Commission resolved referrals from FINRA regarding the fund and how the number of referrals over the timeframe in question compares to similarly situated firms. In a letter to SEC Chair Mary Schapiro, the Senator also asked if the SEC ever drafted a Wells Notice with regard to the hedge fund related to any of these referrals or related to any other matter and, if so, to provide a copy of any draft or final Wells Notice. The SEC is asked to respond to these requests by June 7, 2011.
A Wells Notice is an informal procedure used by the SEC to allow persons under investigation for possible securities law violations to present their views to the Commission before an enforcement proceeding is authorized. These presentations are referred to as Wells submissions, after John A. Wells who headed the SEC’s 1972 Advisory Committee on Enforcement Policies and Practices.
In his letter to Chairman Schapiro, Senator Grassley noted his longstanding interest in whether the SEC is properly regulating the financial markets on behalf of pension holders with investments in securities and other investors. Senator Grassley said that he continued this oversight by recently writing to the Financial Industry Regulatory Authority (FINRA) seeking referrals from FINRA from January 1, 2000, to the present regarding the hedge fund, a firm that has been the subject of significant media coverage regarding allegations of insider trading.
While sensitive to the SEC’s concerns about confirming or denying any ongoing investigations, Senator Grassley observed that Congress and the SEC seek information for fundamentally different purposes. Congress conducts fact-finding inquiries in order to shed light on problems and inform potential legislative solutions.
The function of congressional investigations is not to establish whether any private firms have violated the law, he explained, but rather to examine particular facts and circumstances in order to assess how well the SEC and other agencies created by Congress are executing the authorities granted to them. In support of its mission, Congress must sometimes ask questions in the context of specific cases rather than talk about general issues with a federal agency. Indeed, emphasized the Senator, looking into specific examples is essential for Congress to understand how effectively the SEC pursues referrals such as these.