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.
- 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 (SEC) must re-evaluate the strength of its initial settlements and “specifically design” a program to combat repeat fraudsters, SEC Commissioner Luis Aguilar said Thursday.
Aguilar, speaking at the Securities Enforcement Forum in Washington, said that he’s noticed that recidivism was an issue at the SEC. “Many offenders, particularly Ponzi scheme offenders, have long track records of similar fraud schemes,” he said, which shows that the first time that many of these defendants were prosecuted, “the remedies and penalties did not effectively deter them from engaging in egregious fraud again.”
Since the vast majority of the Commission’s civil enforcement actions result in settlements, Aguilar said the SEC “should insist that every recidivist be subject to more robust sanctions, including potential post-sanction monitoring.” For example, he said, the agency could consider instituting “post-sanction monitoring for individuals that engage in egregious misconduct and/or commit a violation on multiple occasions.” Post-sanction monitoring might include unscheduled office visits; access to phone records, bank records, and state and federal income tax returns; and submission of periodic self-reports by the defendant, he said.
While this type of program admittedly entails “ongoing costs,” Aguilar (left) said, “a limited and targeted monitoring regime on the most dangerous recidivists would provide effective deterrence to defendants who would now be put on notice of the Commission’s continuing interest in their activities.”
Aguilar also encouraged Congress to pass the Stronger Enforcement of Civil Penalties Act of 2012, which was introduced by Sens. Charles Grassley, R-Iowa, and Harry Reid, D-Nev., on July 23.
The introduction of the SEC Penalties Act, Aguilar said, “was a bi-partisan acknowledgement of the concern that previous penalties issued by the Commission in a number of enforcement actions were not adequate.”
The SEC Penalties Act would increase the per-offense financial penalty cap for the most serious securities laws violations to $1 million per violation for individuals, and $10 million per violation for firms. More importantly, the SEC Penalties Act would authorize the SEC to issue penalties for each violation up to the greater of $1 million for individuals or $10 million for entities, three times the gross pecuniary gain, or the losses incurred by investors as a result of the violation.
The bill would also address recidivists by tripling the penalty cap for recidivists who have been found to violate the federal securities laws or subject to SEC administrative relief within the past five years. “This provision would send a loud and clear message that recidivism is unacceptable and that the financial consequences for recidivism may be severe,” Aguilar said.