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SEC Voices Concerns Over Hedge Funds Closing Deals Via WhatsApp

Conducting financial business can be done in various ways. In today’s modern era, using social messaging apps is the norm. However, the SEC wants to curb WhatsApp use among major hedge funds and demands more transparency. 

It is usual for hedge funds to seek out new clients. With the fresh capital, such funds can grow and eventually gain appeal. Reaching out to new investors can be challenging, though. Especially in this era, there is a tremendous financial crunch for companies and individuals alike. That makes finding new investors willing to part with their precious liquidity more difficult. 

As such, all major hedge funds try a new approach. Looking “hip” and “cool” is necessary, which also means using modern communication. Days of backroom meetings and lengthy phone calls are all but gone. Instead, they have been replaced with online meetings and communication via social messaging apps like Telegram or WhatsApp. It is convenient, fast, and a thorn in the eye of the SEC.

In a new probe, the US regulator wants to curb WhatsApp usage among major hedge funds employees. Point72 Asset Management, Citadel, and other firms have to stop using WhatsApp for “unofficial dealings”. That could prove problematic for all hedge funds relying on these communication channels. 

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It is crucial to note there is no evidence of any wrongdoing or illicit activity. However, it is understandable the SEC wants more transparency. Hedge funds deal with millions – if not billions – of dollars every month. Knowing where the money comes from, who invested it, and their expectations remain crucial. Such information should never be confined to social messaging conversations. 

The SEC has started paying more attention to asset management in recent months. The agency wants to ensure all feals are above board. That includes analyzing the behavior of financial professionals and how they cut deals, make trades, and win clients. 

This probe will likely transcend WhatsApp. Eventually, other popular encrypted messaging apps will likely fall under the SEC’s purview in the end. That includes options like Telegram, another popular communication tool for trading and finance. 

Unsurprisingly, the hedge funds aren’t too happy with these developments. The SEC aims to review devices used by financial professionals, which met tremendous backlash. There are – justifiable – concerns over user privacy and sensitive information. Moreover, “copying” people’s phones and their contents can lead to data breaches and exposing personal details. 

The SEC may be overreaching and flexing its muscles. However, the crackdown on WhatsApp activity is understandable. Although the platform is used legitimately, it invites nefarious behavior. Avoiding that outcome is paramount, but that is also rather challenging. 

That said, more transparency would benefit everyone. It is necessary to protect consumers and investors. In addition, the SEC wants to weed out nefarious behavior as quickly as possible. However, a traditional probe may not suffice. Instead, there needs to be a balance between transparency and privacy. Finding that equilibrium will prove precarious.