The Securities and Exchange Commission on Monday charged three investment advisors for failing to put in place compliance procedures designed to prevent securities law violations.
The cases stem from an initiative within the SEC Enforcement Division’s Asset Management Unit which the SEC says is designed “to proactively prevent investor harm by working closely with agency examiners to ensure that viable compliance programs are in place at firms.”
The firms charged with compliance failures in separate cases on Monday were Utah-based OMNI Investment Advisors Inc.; Minneapolis-based Feltl & Co. Inc.; and Troy, Mich.-based Asset Advisors LLC.
The SEC also charged OMNI’s owner Gary R. Beynon, who served as the firm’s chief compliance officer despite living in Brazil and performing virtually no compliance responsibilities.
According to the SEC, Feltl & Co., Asset Advisors, and Beynon will pay financial penalties and institute a series of corrective measures to settle the SEC’s charges. The SEC said that investigations related to the Asset Management Unit’s compliance program initiative are continuing.
In two of the cases–OMNI and Asset Advisors–SEC examiners previously warned the firms about their compliance deficiencies.
“Not all compliance failures result in fraud, but many frauds take root in compliance deficiencies,” said Robert Khuzami (left), director of the SEC’s Division of Enforcement, in a statement announcing the actions. “That simple truth underlies our renewed focus on identifying and charging firms and individuals that fail their legal obligations to maintain adequate compliance programs.”
Carlo di Florio, director of the SEC’s Office of Compliance Inspections and Examinations, added in the same statement that, “When SEC examiners identify compliance deficiencies, firms are expected to remediate them. The Commission will take enforcement action against registrants that fail to do so.”
Under Rule 206(4)-7 of the Investment Advisers Act, which is known as the “Compliance Rule,” registered investment advisors are required to adopt and implement written policies and procedures that are reasonably designed to prevent, detect, and correct securities law violations. The Compliance Rule also requires annual review of the policies and procedures for their adequacy and the effectiveness of their implementation, and designation of a chief compliance officer to be responsible for administering the policies and procedures.