Algorithmic traders and quant funds are under close scrutiny from an SEC enforcement team responsible for policing hedge funds. At an industry event in New York today, Bruce Karpati, co-chief of the SEC enforcement team, said the agency is  “very much focused” on possible misconduct by traders who primarily use computer models to execute investment strategies, and more cases in those areas are likely.  He added that investigators are zeroing in on firms with “aberrational performance,”  without giving details on practices that are under scrutiny. In February of this year, Karpati’s asset-management team accused Axa Rosenberg Group LLC of causing $217mn in customer losses by concealing a coding error.  At the time, Karpati called the case a “wake-up a call for all quant managers” to be fully forthcoming about the risks of their strategies.   Axa paid $242mn to resolve the claims. He added his team is also looking at how hedge funds value illiquid assets and whether some investment managers have used so-called side pockets to hide underperforming assets. Side pockets are accounts used by hedge funds to separate less-liquid investments from others. The SEC will likely bring more cases against hedge funds that engaged in preferential redemption, where the owners of the firm or selected investors are able to liquidate their investments before other clients. The agency is using powers granted by the Dodd-Frank Act to bring enforcement actions against unregulated entities and seek expanded sanctions in administrative cases. It's expected that more cases will be brought as administrative proceedings at the SEC than pursued in federal court. The agency may pursue more claims against people who have been negligently responsible for misconduct, to capture a wider range of actors than those who knowingly participated in a fraud.