On September 28, 2020, the U.S. Securities and Exchange Commission (“SEC”) filed a complaint against an investment adviser representative located in Nebraska for allegedly cherry picking profitable trades for his personal investment account, while disproportionately assigning unprofitable trades to investment advisory client accounts. During the alleged scheme, which ran from January 2017 to March 2018, the SEC asserts that the investment adviser representative earned a 4.4% return on his personal investment account while his disfavored clients earned a negative 12.56% return. Click here to read the SEC’s complaint.
According to the U.S. Securities and Exchange Commission’s (“SEC”) website, “Insider trading continues to be a high priority area for the SEC’s enforcement program. The SEC brought 58 insider trading actions in FY 2012 against 131 individuals and entities. Over the last three years, the SEC has filed more insider trading actions (168 total) than in any three-year period in the agency’s history.” Improper use of inside information when conducting any securities transaction is a serious violation of securities law. Section 204A under the Investment Advisers Act of 1940 (“Investment Advisers Act”) requires SEC registered investment advisers to “…establish, maintain, and enforce written policies and procedures reasonably designed, taking into consideration the nature of such investment adviser’s business, to prevent the misuse…of material, nonpublic information by such investment adviser or person associated with such investment adviser.” Most state securities regulators have the same requirements. Investment advisers should note that this requirement is much broader than the SEC’s personal securities transaction reporting and supervision requirement under Rule 204A-1 (“Code of Ethics Rule”) of the Investment Advisers Act.
When establishing a compliance program, an investment adviser is required to review and monitor the personal securities transactions by “access persons” in order to prevent inappropriate trading.
SEC Internal Compliance Program for Personal Securities Trading of Its Employees Is a Reminder to RIAs About Supervising PST of Its Access Persons
June 06, 2009
In a May 22, 2009 U.S. Securities and Exchange Commission (“SEC”) press release, Mary Schapiro, SEC Chairman, outlined new steps being taken to strengthen the SEC’s internal compliance program to guard against inappropriate personal securities trading by SEC employees. Previous internal rules for SEC employees prohibited, among other things, short selling, carrying securities on margin, engaging in options or futures transactions in instruments whose value is derived from an underlying security, and holding a security interest in broker-dealers and registered investment advisers. These existing internal rules of the SEC also required employees to hold stock they purchased for at least six months and to report all trades within five days of receiving confirmations.
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.
October 24, 2007
With the end of third quarter 2007, RIA Compliance Consultants would like to remind all 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 the third quarter and must officially be reported to the firm no later than 30 days after the end of the quarter. Therefore, all reports must be collected by October 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.
May 11, 2007
RIA Compliance Consultants, Inc. would like to remind all SEC registered advisor firms of their obligation to collect and review first quarter personal securities transactions. These reports should have been officially collected by the end of April. If your investment advisor firm has not collected its reports, please make sure you do so as soon as possible. Quarterly transaction reports must be submitted no later than 30 days after the end of each calendar quarter. According to the SEC’s Investment Adviser Codes of Ethics rule, specifically Rule 204A-1(b)(2), a federally registered investment advisor’s code of ethics must require access persons to submit to the chief compliance officer, or other persons designated in the code of ethics, quarterly securities transaction reports that meet the following requirements:
December 13, 2006
Over the next several weeks, our electronic newsletter will be focusing upon some of those compliance requirements that every investment advisor firm should consider at the end of the year. Although we will attempt to identify some of the most common investment advisor requirements, it is important to recognize that there are different requirements among the various securities regulators.
January 02, 2006
This is the third entry in a series of blogs RIA Compliance Consultants is posting concerning annual compliance requirements and end of year filings. While we are trying to touch upon the items that all advisor firms are required to complete, it is important that you refer to your regulatory authority to ensure you have an all inclusive list of the requirements your firm must meet. If your firm has questions or concerns about one of the items listed in this entry, please give us a call to discuss how we can help your firm meets its regulatory obligations.
July 19, 2005
In an earlier blog posting, we discussed the fact that investment advisor firms must determine their access persons and ensure appropriate procedures are implemented to review all access persons’ household accounts. In their efforts to meet this requirement, many advisor firms have been asking exactly which types of securities holdings and transactions need to be reviewed.