More On Legal & Compliancefrom The Advisor's Professional Library
- RIAs and Customer Identification Just as RIAs owe a duty to diligently protect their clients privacy and guard against theft, firms also play a vital role in customer identification. Although RIAs are not subject to an anti-money laundering rule, securities regulators expect advisors to address these issues in their policies and procedures.
- 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.
The Department of Labor (DOL) recently brought two actions related to breach of fiduciary duty.
The first was an action against the co-founder and director of a now-defunct investment management company has resulted in a default judgment and order for restitution, as well as other penalties.
Steven Salutric, cofounder and director of Elmhurst, Illinois-based Results One Financial LLC, was ordered to restore $1,211,902.25 to four pension plan client accounts from which he allegedly withdrew funds from 2005 through 2009 in violation of the Employee Retirement Income Security Act.
Results One Financial was a registered investment advisory company that provided services to a broad range of clients that included ERISA-covered employee benefit plans. Salutric was accused of misdirecting the assets of client plans to entities in which he had an interest. Those entities included a film distribution company, a restaurant and a real estate partnership, as well as a church where he served as treasurer.
“It is particularly egregious when those entrusted with protecting workers’ retirement assets jeopardize them by committing illegal acts for personal gain,” said Labor Secretary Hilda L. Solis in a statement.
In this case, an investigation by Labor's Employee Benefits Security Administration, in coordination with the Chicago Regional Office of the U.S. Securities and Exchange Commission, resulted in a lawsuit filed in federal district court in Chicago.
The resulting court order requires Salutric to restore all losses, including lost opportunity costs, to the four pension plan clients and to correct the prohibited transactions involved. The judgment also bars Salutric from serving as a fiduciary or service provider to any employee benefit plan governed by ERISA in the future.
Advisor Accused of Misusing More Than $3.2 Million of Retirement Plan Funds for Ski/Golf Resort
On Wednesday, the U.S. District Court for the District of Idaho granted the DOL's motion for preliminary injunction against Matthew D. Hutcheson and Hutcheson Walker Advisors LLC. The court found that the department had “demonstrated the type of immediate and irreparable injury necessitating entry of a preliminary injunction.”
On May 15, the department filed a complaint in the same court against Hutcheson and others alleging that Hutcheson had violated the Employee Retirement Income Security Act. The complaint alleged that, toward the end of 2010, Hutcheson used more than $3.2 million in retirement plan savings of workers from multiple employers for his own personal benefit and in an attempt to purchase an interest in the Tamarack Resort, a failed ski and golf resort in Idaho.
Concurrent with its civil complaint, the department says it filed a motion for a temporary restraining order and preliminary injunction, seeking removal of Hutcheson and Hutcheson Walker Advisors as fiduciaries of the Retirement Security Plan and Trust, formerly known as the Pension Liquidity Plan and Trust.
The secretary of labor also requested the appointment of Jeanne B. Bryant of Receivership Management as independent fiduciary to the Retirement Security Plan and Trust and the plans. On May 16 the court granted the secretary’s motion for a temporary restraining order and took the motion for preliminary injunction under advisement. Wednesday’s order is the court’s granting of the injunctive relief sought by the department.
In addition to Hutcheson and Hutcheson Walker Advisors, defendants in the secretary’s action include Green Valley Holdings LLC and the Retirement Security Plan and Trust.