More On Legal & Compliancefrom The Advisor's Professional Library
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
In recent enforcement actions, an advisor on the lam who defrauded clients of nearly $40 million had his assets frozen by the SEC, and FINRA fined and censured a firm over the way it handled UIT transactions for more than two years.
Also, FINRA launched a pilot program for large arbitration cases.
FBI Hunts Fugitive Advisor in $40 Million Fraud
Aubrey Lee Price, a Georgia-based investment advisor, is the target of a manhunt by the FBI on accusations that he defrauded his clients of almost $40 million in sales of an unregistered investment fund he managed.
Price apparently went into hiding, according to the SEC, which alleges that he raised money from more than 100 investors living primarily in Georgia and Florida by selling shares in the fund, PFG. Price claimed to invest fund assets in traditional marketable securities, according to the allegations, but also made illiquid investments in South American real estate and a troubled South Georgia bank.
As his losses grew, he made up phony account statements with fictitious balances and returns that he pawned off on investors and bank regulators to hide what he had done.
The SEC alleges that the scheme began in 2008, and that according to PFG’s private placement memorandum, the investment objective was to achieve “positive total returns with low volatility” by investing in a variety of opportunities, including equity securities traded on the U.S. markets.
While approximately $36.9 million in PFG investor money was placed in a securities trading account at a broker-dealer, the account suffered massive trading losses and money was frequently wired to PFG’s operating bank account. Throughout the time during which PFG suffered trading losses, Price prepared client accuont statements indicating fictitious amounts of assets and investment returns, according to the SEC.
According to the SEC’s complaint filed in U.S. District Court for the Northern District of Georgia, Price, believed to be a resident of Lowndes County in Georgia after moving from Manatee County, Fla., sent a 22-page letter to some individuals dated June 2012, titled “Confidential Confession For Regulators—PFG, LLC and PFGBI, LLC Summary.” In the letter, Price admits that he “falsified statements with false returns” in order to conceal between $20 million and $23 million in investor losses.
William P. Hicks, associate director of the SEC’s Atlanta regional office, said in a statement, “Price raised nearly $40 million from investors and made woeful financial transactions that he hid from them. Now both the money and Price are missing.”
Price’s assets have been frozen, and anyone with information about Price’s whereabouts is asked to contact the Atlanta office of the FBI at 404-679-9000 or the Lowndes County Sheriff’s Office at 229-671-2985.
UVEST Fined, Censured in UIT Sales
FINRA censured UVEST Financial Services Group, Inc. and fined the firm $230,000 over findings that it failed to establish, maintain and enforce written supervisory procedures reasonably designed to ensure that sales charge discounts were correctly applied on eligible Unit Investment Trust (UIT) purchases.
Without admitting or denying the findings, the firm consented to the measures and also undertakes to provide remediation to all customers who, for a period of more than two years, qualified for, but did not receive, appropriate sales charge discounts on UIT purchases, rollovers and exchanges.
Also, within 210 days of the entry of the findings, the firm must complete the remediation process and submit to FINRA a schedule of all customers identified during the firm’s review as having not received an appropriate sales charge discount.
According to the findings, the firm relied primarily on its brokers to ensure that customers received appropriate UIT sales charge discounts, despite the fact that the firm failed to appropriately inform and train brokers and their supervisors about such sales charge discounts. As a result of the firm’s defective WSPs and supervisory system, it failed to provide eligible customers with appropriate sales charge discounts on UIT purchases, rollovers and exchanges.
The findings also stated that the firm failed to identify and appropriately apply sales charge discounts in UIT transactions so that it overcharged customers approximately $44,048.07. Firm customers purchased UITs in brokerage accounts and the firm earned $3,704,781.81 in gross commissions through those purchases.
FINRA also found that the firm failed to establish, maintain and enforce a supervisory system and WSPs reasonably designed to ensure delivery of prospectuses in connection with sales of UITs as required by Section 5(b)(2) of the Securities Act of 1933. The firm does not have any records regarding whether customers who purchased UITs during this period received prospectuses.
FINRA Launches Pilot Program for Large Case Arbitration
Parties involved in arbitration cases involving claims of more than $10 million have a new FINRA program in which to pursue action. According to FINRA, the program enables parties to customize the administrative process to better suit special needs of a larger case; it also allows them to bypass certain FINRA arbitration rules.
Participation in the pilot program, launched Monday, is voluntary and open to all cases; however, eligibility depends on all parties being required to pay for any additional costs of the program, such as costs for enhanced facilities or additional arbitrator honorariums; in addition, they must be represented by counsel.
Linda Fienberg, president of FINRA dispute resolution, said in a statement, "In response to the increasing number of very large cases, we wanted to introduce a more formal approach to give parties greater flexibility and more control over the administration of their case."
Some of the options available to participants include having non-FINRA arbitrators; having more control over arbitrators’ qualifications and over how they are appointed; the ability to develop their own procedures for exchanging information prior to the hearing; access to expanded discovery options; and a broader range of available facilities.
FINRA said that parties in cases involving $10 million or more will be solicited by letter to participate in the program.