More On Legal & Compliancefrom The Advisor's Professional Library
- Where Are We Headed? The ultimate compliance goal is to help ensure that everyone associated with an advisory firm acts ethically at all times. Advisors and RIAs should do the right thing, even when regulators are not looking over their shoulders.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
In the latest activity surrounding the Madoff Ponzi scheme, the Securities and Exchange Commission on June 22 charged a New York-based broker/dealer and four individuals with securities fraud, alleging that they collectively raised billions of dollars from investors for Bernard Madoff's Ponzi scheme.
According to the SEC, in a complaint filed in U.S. District Court for the Southern District of New York, the SEC charged Cohmad Securities Corporation as well as its chairman, Maurice J. Cohn, chief operating officer Marcia B. Cohn, and registered representative Robert M. Jaffe for actively marketing investment opportunities with Madoff while knowingly or recklessly disregarding facts indicating that Madoff was operating a fraud. In a separate complaint filed in the same court, the SEC says it charged California-based investment advisor Stanley Chais, who oversaw three funds that invested all of their assets with Madoff. When the Ponzi scheme collapsed, Chais investors' accounts were valued at nearly $1 billion.
The SEC previously charged Madoff and Bernard L. Madoff Investment Securities LLC (BMIS) as well as their auditors with committing securities fraud through a Ponzi scheme perpetrated on advisory and brokerage customers of BMIS. "Madoff cultivated an air of exclusivity by pretending that he was too successful to trouble himself with marketing to new investors," said Robert Khuzami, Director of the SEC's Division of Enforcement, in a statement. "In fact, he needed a constant in-flow of funds to sustain his fraud, and used his secret control of Cohmad to obtain them."
James Clarkson, Acting Director of the SEC's New York Regional Office, added in the statement, "These Madoff solicitors collectively received several hundred million dollars in fees over the past few decades while Madoff ruined the finances of countless investors."