More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- Suitability and Fiduciary Duty Recommending suitable investments is more than just a regulatory obligation. Many investors bring cases claiming lack of suitability, so RIAs must continuously put the onus on clients to notify the advisor of changes in their financial situation.
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."