SEC To Electronically Monitor Hedge Funds - InformationWeek
10:43 AM
[Cybersecurity] Costs, Risks, & Benefits
Feb 28, 2017
How much should your organization spend on information security? What's the potential cost of a ma ...Read More>>

SEC To Electronically Monitor Hedge Funds

The agency turns to IT to keep closer tabs on the scandal-scarred alternative investment industry.

Amid the $50 billion Bernard Madoff trading scandal and fears that investors could fall victim to similar Ponzi schemes, the federal Securities and Exchange Commission plans to implement a sophisticated electronic monitoring system that will allow it to keep closer tabs on hedge funds and other alternative investments, InformationWeek has learned.

The SEC plans to award a contract for the system to financial research firm Morningstar, according to government documents. The deal would call for Morningstar to provide SEC personnel with access to its Web-based Altvest database, which tracks trading activity across more than 8,000 hedge funds.

The SEC intends to award the contract to Morningstar on what's known in government outsourcing circles as a sole-source basis. That is, the agency won't actively solicit bids from other vendors.

"Morningstar is the only vendor capable of delivering the data from the Altvest database in the PerTrac format that is required by the commission," the SEC stated in a document dated Feb. 5. PerTrac is a widely used financial analysis platform.

Although hedge funds aren't required to register specific holdings with the SEC, the agency has been heavily criticized for its failure to spot the Madoff scheme and for ignoring warnings from concerned investors.

The day before the SEC documented its intent to implement Altvest, former money manager Harry Markopolos told congressional investigators that the agency lacked the sophistication to catch Madoff-style scammers. "The SEC securities lawyers, if only through their investigative ineptitude and financial illiteracy, colluded to maintain large frauds such as the one to which Madoff later confessed," Markopolos said, according to an account of the hearings published in The Financial Times.

The SEC announced Monday that enforcement director Linda Thomsen plans to step down from her position.

Altvest could give the agency's lawyers and forensic accountants a better shot at identifying would-be Madoffs. "The sole-source contract is for an Internet-based service that provides access to detailed information on hedge funds," the SEC's documentation states.

Among other things, the software provides daily updates on hedge fund activity, offers more than 100 analytical charts, performs customizable scenario analysis, and tracks more than 300 searchable portfolio data points.

"Morningstar Altvest is one of the first and largest databases for hedge fund product and manager information," Morningstar boasts on its Web site. The SEC document did not disclose financial details. A spokesman for the agency did not respond to a request for more information on the initiative.

Comment  | 
Print  | 
More Insights
Newest First  |  Oldest First  |  Threaded View
How Enterprises Are Attacking the IT Security Enterprise
How Enterprises Are Attacking the IT Security Enterprise
To learn more about what organizations are doing to tackle attacks and threats we surveyed a group of 300 IT and infosec professionals to find out what their biggest IT security challenges are and what they're doing to defend against today's threats. Download the report to see what they're saying.
Register for InformationWeek Newsletters
White Papers
Current Issue
Annual IT Salary Report 
Base pay for IT professionals has remained flat this year with a median annual salary of $88,000 for staff and $112,000 for management. However, 58% of staff and 62% of managers who responded to our survey say they're satisfied with their compensation. Download this report to find out which positions earn the highest compensation.
Twitter Feed
InformationWeek Radio
Archived InformationWeek Radio
Join us for a roundup of the top stories on for the week of November 6, 2016. We'll be talking with the editors and correspondents who brought you the top stories of the week to get the "story behind the story."
Sponsored Live Streaming Video
Everything You've Been Told About Mobility Is Wrong
Attend this video symposium with Sean Wisdom, Global Director of Mobility Solutions, and learn about how you can harness powerful new products to mobilize your business potential.
Flash Poll