Not my job: SEC ignores quarterly stock picks by big funds

Introduction

The Securities and Exchange Commission is not monitoring the quarterly reports submitted by big investors such as George Soros, John Paulson, and others that detail their often market-sensitive stock picks, the agency’s inspector general says.

Under SEC regulations, institutional investment managers holding at least $100 million in a fund must submit a 13F form to the agency within 45 days after each quarter ends. The requirement applies to more than 3,000 big funds managed by banks and brokerage firms, hedge funds, and billionaire investors’ funds. Wall Street closely watches the 13F forms of influential investors to see what stocks they are buying and selling.

“Despite Congressional intent that the SEC would be expected to make extensive use of the Section 13(f) information for regulatory and oversight purposes, no SEC division or office conducts any regular or systematic review of the data filed on Form 13F,” the agency’s internal watchdog said. “No Commission division or office has been delegated authority to review the Form 13F filings. As a consequence, no SEC division or office considers reviewing Form 13F as falling under its official responsibility.”

And because no one is monitoring the 13F forms, many have errors which go undetected unless an alert reader of the agency’s EDGAR computer database spots a problem and calls the SEC, the watchdog said.

The 13F form reporting requirements, which were created in 1975, “are outdated and do not currently require disclosure of all significant activities of institutional investment managers, thus rendering the data less useful than it could be to investors and regulators,” the report said. For example, it may be time to raise the $100 million portfolio threshold and consider whether any other legislative changes are needed, the report said.

Fast fact: One SEC paralegal interviewed for the investigation said she receives about two dozen phone calls a week from graduate students, academic researchers, investors, and bankers who spot problems in 13F forms during the peak of the quarterly filing season. However, fixing the errors can take “many months” because they sometimes extend over several quarters or years, the watchdog’s report said.

Other new watchdog reports released by the Government Accountability Office (GAO), various federal Offices of Inspector General (OIG), and other government entities:

Finance

• A deeper analysis by the Fed and Treasury Dept. of big banks’ stress tests can improve the transparency of bank supervision, examiner guidance, risk identification, and regulatory coordination (GAO).
• Chairman of House Oversight and Government Reform Committee asks GAO to examine Federal Employees Group Life Insurance’s use of retained asset accounts with MetLife instead of lump-sum payments to policy beneficiaries. The insurance program covers 4 million federal employees at an annual cost of $4.7 billion (Rep. Ed Towns).
• IRS should clarify the responsibilities of agency employees who protect the security of taxpayer data (OIG).
• There is no need to create a tool on the Education Department’s website providing real-time information such as interest rates and loan terms for federal and private student loans (GAO).

Health

• Top Republican on House Oversight and Government Reform Committee asks inspector general to investigate if FDA employees have tried to mislead Congress about a Johnson & Johnson recall of Motrin caplets (Rep. Darrell Issa).

National Security

• Social Security Administration should withhold payments to people listed as terrorism supporters by the Treasury Department’s Office of Foreign Assets Control (OIG)
• IRS should use the Pentagon’s Defense Contract Audit Agency reports to monitor weapons contractors’ billing and ensure that overbilled costs are repaid (OIG)
• The Pentagon, which received about $694 billion in tax dollars last year, has a “reasonable approach” to fix its longstanding financial management weaknesses but needs leadership to carry it out. Last year, the Pentagon’s internal watchdog said its annual financial statements were not accurate or reliable because of poor management (GAO).

Environment

• USDA’s Natural Resources Conservation Service may be wasting some of its $145 million in stimulus money by buying small, expensive tracts of land with homes as floodplain easements (OIG).
• EPA’s controls for reviewing data about stimulus-funded projects were generally effective and resulted in errors in 3 percent of recipient-reported information (OIG).
• No evidence found to back up allegations that Bureau of Ocean Energy Management inspectors in Lake Jackson, Texas, misused a helicopter to attend industry lunches and to chase wild boars. The probe did find that some inspectors felt pressured to give advance notice to Royal Dutch Shell of planned inspections (OIG).

Misc.

• Criminal investigation launched into allegations that former country director of Peace Corps office in Ecuador sold vehicles for $54,000 less than their actual value to help two non-governmental organizations (OIG)