Recent amendments to SEC rules relating to Nationally Recognized Statistical Rating Organizations (NRSRO) will require anyone seeking a rating of a structured finance product or security to maintain a password-protected website containing all information provided to an NRSRO that is hired to provide a rating. This password-protected information must be made accessible to other NRSROs in order to further the SEC’s goal of maximizing the number of credit rating agencies able to cover each structured finance product and to promote the issuance of ratings by NRSROs that are not hired or retained by an arranger or issuer.

History has shown us that just one breach will sink a ship—whether it is a galleon in the Spanish Armada or the basketball “crew” Micheal Ray Richardson famously referred to in this post’s title. The Galleon scandal demonstrates the damage and even fatal blow an employee can inflict on a company with the firm’s confidential information. Galleon‘s alleged insider trading violations stem from an Intel employee faxing confidential sales and pricing information to the fund. In the two weeks since the story broke, Galleon has liquidated its $3.7B fund and Intel has hired a law firm to launch an internal investigation.

Virtually every fund has a binder that outlines the fund’s insider trading policies and procedures, However, a binder isn’t going to prevent information leaks—like an Intel employee faxing confidential data to Galleon. To protect confidential information, investors and livelihood, fund managers must implement security measures that:

And this time it's taking private equity and venture capital with it. First, let's quickly rewind to 2006, when hedge funds throughout the U.S. were completing their ADV and implementing technology to retain their e-mails and documents. At the time, they were anticipating having to register with the SEC under the Investment Advisers Act of 1940. Enter Phil Goldstein of Bulldog Investors, who lives up to the company moniker by suing the SEC and to the surprise of everyone-wins.

The movement to regulate hedge funds lies dormant for several years, until the fall of 2008, when Wachovia and Merrill Lynch are listed for sale on eBay. This time around the government is smarter. They introduce an amendment to the 1940 act called the Private Fund Investment Advisers Registration Act of 2009 and, just to be safe, throw PE and VC firms under the bus along with hedge funds.

The 2009 Act eliminates the private adviser exemption that funds relied on to avoid regulation. It also takes step to ensure that the Phil Goldstein's of the world don't reappear by granting the SEC enhanced authority to define terms in the 2009 Act. (Note: Goldstein successfully claimed that the SEC exceeded its rule making authority in 2006.)

The tumultuous events of the past year in the world's financial system have rattled the very foundations of our liberal economic system. Unprecedented levels of company bailouts, company failures, corporate losses, budget deficits, government debt and criminal protagonism have led to a tidal wave of new compliance and regulatory requirements.

The sectors and departments most affected by the current economic climate - like financial services, professional services and reporting functions - can expect much more governmental involvement in their operations through new laws, directives and regulatory bodies. The precedent set by the Sarbanes-Oxley (SOX) Act - legislation that resulted from the the Enron and Worldcom tragedy - should suffice as an indicator of where things are heading. To prepare our businesses for the inevitable, we can look at some existing conventions and how companies are dealing with them.