The Securities and Exchange Commission plans to expand its New York office by about 8 percent this year as the financial regulator focuses more heavily on catching cheaters at hedge funds and brokerages.
We have obtained the funds to do more hiring, said George Canellos, a former federal prosecutor and private litigator, who joined the SEC in June as the head of its New York office.
The agency plans to hire 18 people on the enforcement side, where it currently employs about 150 people in New York, and add 15 people to its examinations staff, which currently numbers about 210 in New York, Canellos said at the Reuters Private Equity and Hedge Funds Summit in New York.
The push to hire more lawyers, accountants and even former traders comes at a time that the agency is seeking to become more aggressive in going after the bad guys on Wall Street.
Heavily criticized over failing to stop financial swindler Bernard Madoff's estimated $65 billion Ponzi scheme, the agency last year began hiring outsiders with prosecutorial experience, like Robert Khuzami, now the SEC's Director of Enforcement.
Two months ago, Khuzami created specialist units including one for asset management, where co-chiefs Bruce Karpati and Robert Kaplan will focus on investigations involving investment advisers, investment companies, hedge funds and private equity funds.
We want to be able to talk shop with the hedge fund managers and private equity fund managers and make sure that the industry is able to get the message from a unit in a very direct way, Karpati said, also at the Reuters Private Equity and Hedge Funds Summit.
For the SEC, the financial crisis that led to heavy layoffs on Wall Street may be a boon because it will let the agency hire savvy investment professionals, including former hedge fund traders currently without a job.
It does allow us to take advantage of great opportunities that haven't always been available, Canellos said.
The SEC attorneys said such expertise will be put to good use right away because hedge funds are using increasingly complicated trading strategies involving derivatives, such as credit default swaps, to make money. The regulators said one thing they also are on guard for is funds that have had an uncanny record of success and consistency over the years.
While most hedge funds now employ compliance officers, those internal watchdogs often cannot keep pace with what their own traders are modeling and doing, Karpati said.
Compliance can only do so much, but some of the strategies go over the heads of compliance officers, Karpati said.
(For summit blog: http://blogs.reuters.com/summits/)
(Reporting by Svea Herbst and Matthew Goldstein; Editing by Gary Hill)