More On Legal & Compliancefrom The Advisor's Professional Library
- 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.
- 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.
A day after Securities and Exchange Commission Chairwoman Mary Jo White told compliance officials that the agency was cracking down on advisors who fail to fix shoddy compliance programs, the agency announced sanctions against three advisory firms for “repeatedly” ignoring such problems.
The enforcement actions, which were brought as a result of the agency’s multipronged Compliance Program Initiative, targets firms that have been previously warned by SEC examiners about compliance deficiencies but failed to effectively act upon those warnings.
The two-year old Compliance Initiative is a multipronged effort by the Enforcement Division’s Asset Management Unit, examination staff and Investment Management Division.
The firms charged Wednesday — Modern Portfolio Management, Equitas Capital Advisers and Equitas Partners — have agreed to settlements in which they will pay penalties and hire compliance consultants.
“The Compliance Program Initiative is designed to address repeated compliance failures that may lead to bigger problems,” said Andrew Ceresney, co-director of the SEC’s Division of Enforcement, in a statement announcing the actions. “That risk materialized with these firms, whose compliance programs were not adequate to prevent misleading statements in marketing materials or inadvertent overbilling of clients. Firms must not only have policies and procedures in place, but also need to properly implement those policies and procedures.”
The SEC provided a detailed description of each action.
The SEC’s order against Modern Portfolio Management (MPM) and its owners G. Thomas Damasco II and Bryan Ohm finds that they failed to correct ongoing compliance violations at the firm despite prior warnings from SEC examiners. In particular, they failed to complete annual compliance reviews in 2006 and 2009 and made misleading statements on MPM’s website and investor brochure.
For instance, one location on MPM’s website misleadingly represented that the firm had more than $600 million in assets. However, on its Form ADV filing to the SEC during that same period, it reported that the firm’s assets under management were $359 million or less.
MPM, Damasco and Ohm agreed to be censured and pay a total of $175,000 in penalties. Damasco and Ohm must complete 30 hours of compliance training, and MPM has agreed to designate someone other than Damasco or Ohm to be its chief compliance officer. MPM, which is based in Holland, Ohio, must retain a compliance consultant for three years.
According to the SEC’s orders against New Orleans-based Equitas Capital Advisers and Equitas Partners as well as owner David S. Thomas Jr., chief compliance officer Susan Christina, and former owner and chief compliance officer Stephen Derby Gisclair, they failed to adopt and implement written compliance policies and procedures and conduct annual compliance reviews to satisfy the Compliance Rule.
Gisclair also caused Compliance Rule violations and the incorrect billing of clients at Crescent Capital Consulting LLC, an investment advisory firm that he opened in late 2010. Gisclair inflated the amounts of assets managed by Equitas and Crescent in their Form ADV filings to the SEC, and he improperly removed and retained nonpublic personal client information when he left Equitas.
Equitas Capital Advisers and Crescent have reimbursed all overcharged clients, and Equitas Capital Advisers, Thomas and Gisclair agreed to pay a total of $225,000 in additional penalties. The Equitas firms have agreed to censures, the Equitas firms and Crescent have hired independent compliance consultants, and the Equitas firms and Gisclair must give clients notice of the SEC enforcement actions.
Check out SEC’s White: Compliance Pros Acting Lawfully Should Not Fear Enforcement on ThinkAdvisor.