Performance Perspectives Blog

Is the SEC now verifying the GIPS verifiers?

by | Sep 25, 2012

Twenty years ago, I suggested to the then head of the AIMR-PPS(R) (the forerunner to the Global Investment Performance Standards (GIPS(R)), Sue Martin, that someone needed to verify the verifiers, because I was discovering misinformation being shared by a few verification firms. Over the years this has continued to be a topic of interest. Unfortunately the GIPS Verifier and Practitioner subcommittee has yet to offer anything concrete regarding this matter; perhaps it’s simply a very complicated issue.

In a recent Star Tribune (Minneapolis,  MN) article titled “SEC widens fraud inquiry into Twin Cities money manager,” Dan Brown reported that “[late] last month, the SEC served subpoenas on two companies that certify compliance with a rigorous financial reporting system known as the Global Investment Performance Standard [sic] (GIPS). The subpoenas seek all information related to work they’ve done on behalf of Welliver, Stringfield, DBlaine Capital, or a mutual fund called DBlaine Fund.”

The SEC’s motives for asking for this information are, of course, open to speculation. But one possibility is that the SEC is, in a way, attempting to verify the verifiers.

This isn’t the first firm that (a) had claimed compliance with GIPS and (b) had undergone verification to be found in trouble by the SEC. And so, perhaps the SEC has decided it’s time to take a look at the verifiers of such firms. This, I think, is a good thing. And while verification isn’t designed to detect fraud, if it’s determined that shoddy work was done by the verifier, might some action follow? Since verifiers don’t, per se, fall under the SEC’s jurisdiction, it’s difficult to say what, if any, action would follow. Perhaps merely public dissemination of the verifier’s identity?

I suspect that this news will send shock waves through the GIPS verification world. No doubt, more will follow.

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