Whether it be insider trading, soft dollar issues, misappropriation or misrepresentations, the slew of SEC enforcement actions filed against investment advisers in the last year – along with the recently released results from the SEC’s Division of Enforcement (Enforcement) – speaks volumes. The SEC is taking action. The statistics alone show a concerning trend: In 2011, the SEC filed 146 enforcement actions relating to investment advisers or investment companies, a single year record and a 30 percent increase over fiscal year 2010. These record numbers caused the industry to question whether this was merely an anomaly – possibly a byproduct of the financial crisis – or whether the industry as a whole became a target. With the release of the SEC’s fiscal year 2012 numbers – 147 enforcement actions against investment advisers and investment companies, one more than the previous year’s record number – the SEC confirmed the industry’s fears. Investment advisers remain in the SEC’s cross-hairs. Understanding how this happened can help a firm reduce the risk of becoming the subject of an SEC examination or enforcement investigation. This requires looking behind the statistics. Although the driving force behind this trend is likely a multitude of factors, the primary culprits are an aggressive Asset Management Unit within Enforcement, the SEC’s new whistleblower program and an enhanced and invigorated Office of Compliance Inspections and Examinations. In a guest article, Andrew J. Dunbar, a partner at Sidley Austin LLP and a former SEC enforcement attorney, discusses each of these developments in an effort to help hedge fund managers minimize the risk of becoming the subject of an SEC enforcement action.