More On Legal & Compliancefrom The Advisor's Professional Library
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
- 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.
C.S. Capital Management Inc. of Atlanta, Ga., formerly known as Chadwick, Saylor & Co., and owner Paul H. Saylor have been ordered to restore $1.09 million to the Plumbers and Pipefitters National Pension Plan as restitution for improperly investing $25 million in risky private placement bonds. The firm also was ordered to pay $109,990.91 in fines to the federal government.
The U.S. Department of Labor announced on Monday that it had obtained a consent order against the firm, which had been hired by the plan to evaluate and make a recommendation on the purchase of bonds. The plan covers more than 123,000 participants around the country; the bonds were to finance the Playa Vista development project in Los Angeles, Calif.
The Labor Department filed a lawsuit simultaneously with the order in the U.S. District Court for the Northern District of Virginia in Alexandria. The suit alleges that Saylor and the firm violated the Employee Retirement Income Security Act(ERISA)by the purchase of the bonds.
The bonds were purchased in 1998; the issuer has only made a single interest payment, in 2001, and has made no payments since.
The suit also alleges imprudent action by the defendants in purchasing the Playa Vista B bonds, which it says have an unduly low rate of return compared to the risk assumed by the plan, and by purchasing bonds that subordinated the plan's investment to that of Playa Vista A bondholders.
Secretary of Labor Hilda L. Solis said in a statement, “These defendants violated their duty to responsibly manage the plan's investments. Our goal is to return money improperly managed and invested so it can be available to pay pension benefits.”