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- 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 on Monday charged three investment advisors for failing to put in place compliance procedures designed to prevent securities law violations.
The cases stem from an initiative within the SEC Enforcement Division’s Asset Management Unit which the SEC says is designed "to proactively prevent investor harm by working closely with agency examiners to ensure that viable compliance programs are in place at firms."
The firms charged with compliance failures in separate cases on Monday were Utah-based OMNI Investment Advisors Inc.; Minneapolis-based Feltl & Co. Inc.; and Troy, Mich.-based Asset Advisors LLC.
The SEC also charged OMNI’s owner Gary R. Beynon, who served as the firm’s chief compliance officer despite living in Brazil and performing virtually no compliance responsibilities.
According to the SEC, Feltl & Co., Asset Advisors, and Beynon will pay financial penalties and institute a series of corrective measures to settle the SEC’s charges. The SEC said that investigations related to the Asset Management Unit’s compliance program initiative are continuing.
In two of the cases–OMNI and Asset Advisors–SEC examiners previously warned the firms about their compliance deficiencies.
“Not all compliance failures result in fraud, but many frauds take root in compliance deficiencies,” said Robert Khuzami (left), director of the SEC’s Division of Enforcement, in a statement announcing the actions. “That simple truth underlies our renewed focus on identifying and charging firms and individuals that fail their legal obligations to maintain adequate compliance programs.”
Carlo di Florio, director of the SEC’s Office of Compliance Inspections and Examinations, added in the same statement that, “When SEC examiners identify compliance deficiencies, firms are expected to remediate them. The Commission will take enforcement action against registrants that fail to do so.”
Under Rule 206(4)-7 of the Investment Advisers Act, which is known as the “Compliance Rule,” registered investment advisors are required to adopt and implement written policies and procedures that are reasonably designed to prevent, detect, and correct securities law violations. The Compliance Rule also requires annual review of the policies and procedures for their adequacy and the effectiveness of their implementation, and designation of a chief compliance officer to be responsible for administering the policies and procedures.
“The failure to adopt and maintain adequate compliance policies and procedures is a significant violation of the federal securities laws,” said Robert Kaplan, co-chief of the SEC Division of Enforcement’s Asset Management Unit. “We will continue to work with our counterparts in the national exam program to identify investment advisers that put their investors at risk by failing to take their compliance obligations seriously.”
The SEC offered the following details about each case and the actions taken.
According to the SEC’s order in the case against OMNI and Beynon, the firm failed to adopt and implement written compliance policies and procedures after SEC examiners informed OMNI of its deficiencies. Between September 2008 and August 2011, OMNI had no compliance program and its advisory representatives were completely unsupervised. Beynon assumed the chief compliance officer responsibilities in November 2010 while living abroad.
OMNI failed to establish, maintain, and enforce a written code of ethics, and failed to maintain and preserve certain books and records, the SEC said. "In response to a
Under the settlement, Beynon agreed to pay a $50,000 penalty and agreed to be permanently barred from acting within the securities industry in any compliance or supervisory capacity and from associating with any investment company. Additionally, as part of the settlement, OMNI agreed to provide a copy of the proceeding to all of its former clients between September 2008 and August 2011.
According to the SEC’s order against Feltl & Co., the firm failed to adopt and implement written compliance policies and procedures for its growing advisory business. It further neglected to adopt a code of ethics and collect the required securities disclosure reports from its staff. As a result of its compliance failures, the SEC says that Feltl "engaged in hundreds of principal transactions with its advisory clients’ accounts without informing them or obtaining their consent as required by law. Feltl also improperly charged undisclosed commissions on certain transactions in clients’ wrap fee accounts."
Under the settlement, Feltl & Co. agreed to pay a penalty of $50,000 and return more than $142,000 to certain advisory clients. Additionally, the firm will hire an independent consultant to review its compliance operations annually for two years, provide a copy of the SEC’s order to past, present and future clients, and prominently post a summary of the order on its website.
According to the SEC’s order against Asset Advisors, SEC examiners found that the firm had failed to adopt and implement a compliance program. After SEC examiners brought it to the firm’s attention, Asset Advisors adopted policies and procedures but never fully implemented them. Similarly, Asset Advisors only adopted a code of ethics at the behest of the SEC exam staff and then failed to adequately abide by the code.
Under the settlement, Asset Advisors agreed to pay a $20,000 penalty, cease operations, dregister with the SEC, and–with clients’ consent–move advisory accounts to a firm with an established compliance program, the SEC states.