More On Legal & Compliancefrom The Advisor's Professional Library
- The Need for Thorough and Effective Policies and Procedures Whethere an advisor is SEC or state-registered, RIAs must revise their policies and procedures to address significant compliance problems occurring during the year, changes in business arrangements, and regulatory developments.
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
The Securities and Exchange Commission announced Wednesday that the agency filed a record 735 enforcement actions in the fiscal year that ended Sept. 30—with 146 of these actions being taken against investment advisors, a 30% increase over 2010.
The record number of enforcement actions, the SEC said, are a result of the enforcement division undergoing its most “significant” reorganization in 2009 and 2010 since being established in the early 1970s.
For instance, the total number of enforcement actions jumped from 677 in 2010 to 735 this year (see chart). The number of enforcement actions against advisors and broker-dealers also shot up, with enforcement actions against advisors/investment companies going from 112 in 2010 to 146 at the end of September. Actions against BDs went from 70 last year to 112 in 2011, a 60% increase.
“We continue to build an unmatched record of holding wrongdoers accountable and returning money to harmed investors,” said SEC Chairman Mary Schapiro, in a statement announcing the enforcement results. “I am proud of our Enforcement Division’s many talented professionals and their efforts that resulted in a broad array of significant enforcement actions, including those related to the financial crisis and its aftermath.”
Schapiro noted the changes made in the enforcement division over the past two years, which included: flattening its management structure; revamping the way it handles tips and complaints; facilitating the swift prosecution of wrongdoers through a formal program that encourages cooperation from individuals and companies in SEC investigations; and creating national specialized units in five priority areas involving complex and higher risk areas of potential securities laws violations, among other things.
Among those charged in SEC investment advisor and broker-dealer actions were Charles Schwab entities and executives for making misleading statements to investors regarding a mutual fund heavily invested in mortgage-backed and other risky securities, AXA Rosenberg Group and its founder for concealing a significant error in the computer code of the quantitative investment model the company used to manage client assets, and Merrill Lynch for misusing customer order information to place proprietary trades for the firm and for charging customers undisclosed trading fees.
The Schwab entities paid more than $118 million to settle the SEC’s charges, while AXA Rosenberg paid $217 million to cover investor losses and a $25 million penalty.