More On Legal & Compliancefrom The Advisor's Professional Library
- 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.
- Disaster Recovery Plans and Succession Planning RIAs owe a fiduciary duty to clients to prepare for disasters and other contingencies. If an RIA does not have a disaster recovery plan, clients financial well-being may be jeopardized. RIAs should also engage in succession planning, ensuring a smooth transaction if an owner or principal leaves.
Among recent enforcement actions were negotiations over a possible settlement between the Securities and Exchange Commission and SAC Capital.
In addition, the DOL retrieved $1.6 million for Sunkist employees and FINRA fined and censured Scottrade over failures regarding restricted stock, Tradition Asiel Securities Inc. over WSP failures and Delaney Equity Group and its principal on penny stock violations.
SAC Capital Could Plead Guilty in Criminal Case; SEC May Settle
SEC action against SAC Capital Advisors LP could result in a settlement, in the wake of the firm’s guilty plea to securities fraud in a negotiated settlement to a parallel criminal case of insider trading.
While neither the Justice Department nor the SEC has yet made an official announcement regarding a possible disposition of the case, word was that the firm was considering pleading guilty as part of that settlement.
Four units of hedge fund group SAC were indicted in the criminal case in July, and six of the eight fund managers and analysts charged pleaded guilty. The two who have not, Michael Steinberg and Mathew Martoma, are going to trial with the firm paying their legal fees. Fund manager Steven Cohen himself would still be under criminal investigation, although at present no charges are expected against him.
Under Cohen’s leadership, the firm raked in annual returns that topped 25% annually for more than 20 years. Still, as the investigation has progressed, the firm’s investors have asked for more than $5 billion back of the $15 billion it had under management as of last January. The bulk of the remaining funds belongs mostly to Cohen himself and to his employees.
The New York Times reported Wednesday that Cohen is auctioning off $80 million worth of art.
The settlement with prosecutors includes the winding down of the firm as an investment advisor and the surrender of its SEC registration.
Cohen would still be allowed to manage his own money by running a family office; discussions over when he might be permitted to resume management of outside funds are still progressing, and the SEC is expected to have the final say; its civil suit seeks to bar Cohen from the securities industry.
DOL Retrieves $1.6 Million for Sunkist Employees
The U.S. Department of Labor today announced that Sunkist Growers Inc. and fiduciaries for the company’s retirement plans were required to restore $1,620,420 in losses to employee benefit plans under the terms of a consent judgment and order.
The decision, entered in the U.S. District Court for the Central District of California, follows an investigation by the department’s Employee Benefits Security Administration that found that the citrus farming cooperative, based in Sherman Oaks, Calif., and the plans’ fiduciaries mishandled employee retirement funds in violation of the Employee Retirement Income Security Act.
“Retirement plan assets represent workers’ hard-earned savings, not a source of operating funds that companies can choose to use as they see fit,” said Assistant Secretary of Labor for Employee Benefits Security Phyllis Borzi, in a statement. “This is a case of plan fiduciaries failing in their legal and ethical duties to act solely in the interest of plan participants.”
The department previously filed a lawsuit alleging that from January 2006 through April 2011, the defendants used retirement plan assets to improperly reimburse the company for expenses including salaries and benefits for employees and managers working in various departments at Sunkist Growers.
EBSA investigators also found that the company was reimbursed by the plans based on projected expenses determined at the beginning of the year rather than on the actual expenses incurred, and that no adjustments were made to repay the plans for the overpayments that were made.
The judgment permanently enjoins the fiduciaries from violating ERISA and requires the appointment of an independent fiduciary to review and approve any future services provided by Sunkist Growers to the plans.
Scottrade Fined, Censured by FINRA for Restricted Stock Failures
Scottrade Inc. was censured by FINRA and fined $100,000 for failing to conduct an independent inquiry over shares of stock sold by a customer as freely tradable when in fact they were restricted.
The firm neither admitted nor denied FINRA’s findings that the customer was a corporate insider, control person of the company and served as the company’s chief financial officer, general counsel and board member during the period that he sold the stock through accounts at the firm. The number of shares he sold was substantial.
The customer deposited 1,286,500 shares of the stock—more than 16% of the total shares of outstanding company stock—in his family accounts, sold most of them shortly afterward, and then wired out all of the sales proceeds. The 1,259,600 shares deposited and sold by two additional customers’ accounts constituted an additional 16% of the company’s total shares outstanding.
FINRA also found that the stock was not properly issued with regard to the SEC S-8 registration; that meant the shares were restricted from resale, without an applicable exemption from registration. No exemptions applied to the resales.
The firm failed to determine whether the shares could be sold, did not conduct an inquiry into the matter, and failed to have supervisory procedures in place regarding the situation.
FINRA Fines, Censures Firm on WSP Failures
Tradition Asiel Securities Inc. was censured by FINRA and fined $90,000 for written supervisory procedures (WSP) failures after it failed to report information regarding purchase and sale transactions effected in municipal securities to the Real-time Transaction Reporting System (RTRS) within 15 minutes of the trade time in accordance with regulations.
It also, according to FINRA, failed to report the correct trade time to the RTRS in municipal securities transaction reports, failed to show the correct execution time on brokerage order memoranda and failed to have a supervisory system that was reasonably designed to achieve compliance in this area.
In addition, the firm failed to accept or decline in the OTC Reporting Facility (OTCRF) transactions in reportable securities within 20 minutes after execution; that represented approximately 10% of all transactions the firm had an obligation to accept or decline during the review period.
The firm neither admitted nor denied the findings.
FINRA Fines, Censures Firm, Registered Principal on Unregistered Stocks
Delaney Equity Group LLC of Palm Beach Gardens, Fla., and its president, chief compliance officer (CCO) and anti-money laundering compliance officer (AMLCO), David Cameron Delaney, were censured and fined by FINRA on findings that the firm, acting through Delaney, allowed a customer and its numerous affiliated accounts to sell almost a billion newly issued, unregistered equity shares of some issuers. As a result, the firm and Delaney participated in the distribution of almost a billion shares of unregistered and nonexempt securities.
In addition, FINRA found that the firm, through Delaney, failed to have in place supervisory procedures to ensure compliance with applicable regulations and also failed to enforce its WSPs for supervising individuals with previous violations; in addition, its anti-moneylaundering policies and enforcement failed to identify a customer who had a regulatory history, failed to detect highly suspicious activity, properly investigate the suspicious activity and report suspicious activity as required.
As a result, the customer was able to put nearly a billion shares into multiple related accounts, sell those unregistered shares and wire the proceeds out of the accounts despite a regulatory history that should have triggered red flags for the firm.
The firm was fined $215,000, and prohibited from dealing with penny stocks unless the stocks have been held for at least 180 days, satisfy other conditions, or are subject to an effective registration statement. In addition, the firm must bring in an independent consultant to review its compliance procedures.
Delaney himself was fined $40,000 and placed under suspension.
Without admitting or denying the findings, Delaney and his firm consented to the sanctions and entry of the findings.
Check out SEC, DOL Enforcement: Diebold, Stryker Busted for Bribing Foreign Officials on ThinkAdvisor.