FBI Agent Says Compliance Efforts Have 'Gone Too Far'

Oct 2 2013 | 11:12am ET

Federal Bureau of Investigation agent David Chaves thinks that hedge funds may be doing too much—not to little—in the area of compliance.

Chaves told a conference for hedge-fund lawyers that the massive growth of compliance teams over the last several years may have gone too far. He cited firms that have boosted the size of their compliance departments from two to 40.

"It's nice to see, but it's also important to say, 'Is it all necessary?'" Chaves said. "I believe its gone too far in many respects," he continued, arguing that compliance should not impede a firm's ability to invest on a day-to-day basis.

Chaves did make clear that the FBI and other enforcement agencies would continue to diligently seek out wrongdoing. He said that all organizations—including the FBI—have employees who will behave badly, estimating their numbers at 1% to 2%, The Wall Street Journal reports.

"We're not taking those cases on the fringe," he said. "Someone has to knowingly and willingly cross the line."

And when they do, the FBI will be there, Chaves said, monitoring phone records and recording calls. He described the beginning of the current crackdown on hedge-fund insider-trading, telling the lawyers that the FBI trailed the "first cooperator," who he did not identify, for months before making their approach.

Chaves did acknowledge that the FBI has yet to crack applications that allow users to send messages and photos that self-destruct. "We're working on it," he said.


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