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Comment: SEC looks to electronic oversight of alternative funds

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Following the beating taken by the reputation of the Securities and Exchange Commission over its failure to detect Bernard Madoff’s USD50bn Ponzi scheme and or the faults in the risk model

Following the beating taken by the reputation of the Securities and Exchange Commission over its failure to detect Bernard Madoff’s USD50bn Ponzi scheme and or the faults in the risk modelling of much of the US financial industry, the watchdog is hoping technology will help it improve its supervisory performance.

According to InformationWeek, the SEC is planning to implement a sophisticated electronic monitoring system that will allow it to keep closer tabs on hedge funds and other alternative investments.

The SEC plans to award a contract for the system to financial research firm Morningstar, which would provide the regulatory’s staff with access to its Altvest database, which tracks trading activity by more than 8,000 hedge funds. The SEC does not plan actively to solicit bids from other vendors.

The initiative comes just after the latest blow to the image of the SEC – the testimony of former investment manager Harry Markopolos, who warned the SEC about Madoff but found, he told congressional investigators, that the agency lacked the sophistication to catch scammers.

If the SEC is to survive, plenty of changes are needed, and advanced IT tools are certainly a start. There are also personnel changes, with the arrival of new chairman Mary Schapiro and the departure this week of Linda Chatman Thomsen, director of the commission’s division of enforcement, who took the brunt of the congressmen’s anger. But critics say nothing less than a root-and-branch change in mentality will get the SEC back on track.

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