More On Legal & Compliancefrom The Advisor's Professional Library
- 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.
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
The commission announced Tuesday that it had sanctioned a former portfolio manager at a Boulder, Colo.-based investment advisor for forging documents and misleading the firm’s chief compliance officer to conceal his failure to report personal trades.
An investigation found that Carl Johns of Louisville, Colo., failed to pre-clear or report several hundred securities trades in his personal accounts as required under the federal securities laws and the code of ethics at Boulder Investment Advisers (BIA). Johns concealed the trades in quarterly and annual trading reports that he submitted to BIA by altering brokerage statements and other documents that he attached to those reports. Johns later tried to conceal his misconduct by creating false documents that purported to be pre-trade approvals, and misled the firm’s chief compliance officer in her investigation into his improper trading.
To settle the SEC’s charges — which are the agency’s first under Rule 38a-1(c) of the Investment Company Act for misleading and obstructing a chief compliance officer — Johns agreed to pay more than $350,000 and be barred from the securities industry for at least five years.
“Securities industry professionals have an obligation to adhere to compliance policies, and they certainly must not interfere with the chief compliance officers who enforce those policies,” Julie Lutz, acting co-director of the SEC’s Denver Regional Office, said in a statement. “Johns set out to cover up his compliance failures by creating false documents and misleading his firm’s CCO.”
According to the SEC’s order, Johns submitted inaccurate quarterly and annual reports and falsely certified his annual compliance with the code of ethics. Johns physically altered brokerage statements, trade confirmations and pre-clearance approvals before submitting them to the firm along with these reports. For example, he manually deleted securities holdings listed on his brokerage statements before submitting them in order to avoid disclosing securities purchases that were not pre-cleared.
Check out SEC Enforcement: Scheme Loots IRAs to Fund Bounty Hunter TV Show on ThinkAdvisor.