The U.S. Securities and Exchange Commission (“SEC”) recently announced that during its previous fiscal year, enforcement actions against registered investment advisers increased thirty percent over the 2010 fiscal year. During the 2011 fiscal year, which ended in September, the SEC filed a total of 146 enforcement actions against investment advisers and investment companies. For a point of reference, from 2006-2009 the SEC filed on average 82 enforcement actions against registered investment advisers.
Category Archives: Enforcement
Section 31(a) of the Investment Company Act of 1940 (“ Investment Company Act”) requires that each registered investment adviser “maintain and preserve” records of accounts, correspondence, memorandums, tapes, discs, papers, books, and other documents or transcribed information. These books and records are to be maintained for a period of five years and are subject to random periodic inspection by the U.S. Securities and Exchange Commission (“SEC”). Likewise, under Rule 204-2 of the Investment Advisers Act of 1940 (“Investment Advisers Act”), the SEC requires certain books and records to be maintained by a registered investment adviser regardless of whether of the investment adviser is associated with a registered investment company.
On June 21, 2010, the U.S. Securities and Exchange Commission (“SEC”) charged a New York based registered investment adviser and three affiliated firms with the fraudulent management of collateralized debt obligations (“CDOs”) tied to mortgage backed securities. The SEC alleges that ICP Asset Management LLC, and its owner/president Thomas Priore, made fraudulent misrepresentations that earned the firm several million dollars in advisory fees and also caused four CDOs to lose tens of millions of dollars.
On May 20, 2009, the U.S. Securities and Exchange Commission (“SEC”) announced that it had filed an emergency civil action charging Wealth Management LLC (registered investment adviser), James Putman (founder, majority owner and Chief Executive Officer of Wealth Management), and Simone Fevola (former President and Chief Investment Officer of Wealth Management) with engaging in a kickback scheme and other fraudulent conduct involving unregistered investment pools for which Wealth Management served as a General Partner or Managing Member and as the registered investment adviser responsible for managing the pooled assets.
SEC Issues Cease-and-Desist Order for Failure to Disclose Conflicts of Interest and Misrepresentation of Its Research Process
July 16, 2008
Recently, the U.S. Securities and Exchange Commission (“SEC”) issued a cease-and-desist order, disgorgement to clients, prejudgment interest and penalties, among other sanctions against a registered investment adviser for its failure to disclose conflicts of interest in its selection of funds for discretionary clients and for providing misrepresentations to clients by stating that funds selected for model portfolios were chosen according to the firm’s approved research process.
With the end of first quarter 2008, RIA Compliance Consultants would like to remind SEC registered investment advisors of their requirement to collect or prepare updated personal securities transaction reports from all access persons. The information on the reports must reflect transactions that took place during first quarter of 2008 and must officially be reported to the firm no later than 30 days after the end of the quarter. Therefore, all reports must have been collected by April 30. As part of the SEC Code of Ethics rule, all SEC registered investment advisor firms are required to review the activity of their access persons’ securities holdings at the end of every calendar quarter. The quarterly reports and documented review/approval of each report must be retained as part of a registered investment advisor firm’s official books and records.
In January of this year, the SEC entered bar and cease and desist orders against a two member registered investment advisor firm. The firm was owned by a husband and wife with the wife serving strictly in an administrative capacity. The law judge in the case found that the registered investment advisor had willfully violated the Investment Advisers Act of 1940 because it falsely represented to the SEC that it had assets under management (AUM) exceeding $25 million in order to remain eligible for SEC registration. The inflated AUM numbers were reported on several Form ADV Part 1 amendments from 1996 through 2000. The SEC terminated the firm’s registration in 2002. However, the firm continued to hold itself out to the public as an investment advisor and reported its AUM numbers through several database services. The reporting of those numbers were also found to be intentionally inflated and therefore misleading. Further, the firm was not able to provide documentation substantiating its AUM and performance numbers. The firm claimed all paperwork and client files were lost in a fire and then claimed the paperwork was lost in flood. To read the entire order click here.
SEC Files Cease-and-Desist Order Against an Investment Adviser for Failure to Disclose Referral Fees
September 26, 2007
On September 25, 2007, the U.S. Securities and Exchange Commission (“SEC”) filed a cease-and-desist order against an investment adviser for its failure to disclose that the investment adviser’s president received payments from a security issuer that the investment adviser recommended to its clients.
SEC Issues Cease and Desist Proceedings for Failing to Allow SEC Staff to Examine Business Records
September 25, 2007
On September 24, the U.S. Securities & Exchange Commission (SEC) issued an order instituting administrative and cease-and-desist proceedings against a registered investment adviser for refusing to produce or allow for the inspection of the firm’s advisory business.
SEC Issues Cease-and-Desist Order for Incomplete Disclosure of a Conflict of Interest
September 22, 2007
Once again the U.S. Securities and Exchange Commission (“SEC”) issued a cease-and-desist order against a registered investment adviser for incomplete disclosure of a conflict of interest in violation of Section 207 of the Investment Advisers Act of 1940.
