Adviser and Principals Including CCO Punished for Weak Compliance Program
An investment adviser and its two principals, one of whom served as its Chief Compliance Officer, agreed to censures and fines for failing to disclose compensation earned by an affiliated broker-dealer and for failing to implement an effective compliance program. The SEC alleged that the firm’s affiliated introducing broker earned a portion of the float on uninvested cash balances and earned fees from riskless principal transactions. The SEC charged that the firm did not disclose the compensation in its ADV or obtain client consent for principal transactions. The SEC also charged the firm with violations of the Compliance Rule (206(4)-7) because the policies and procedures were designed for a broker-dealer firm and had not been updated for 2 years to reflect changes in the law. Also, the SEC claimed that the firm’s Code of Ethics did not require an initial holdings report or duplicate brokerage account statements.
OUR TAKE: We have seen firms with a broker-dealer heritage try to pass off the BD WSPs as an adviser compliance manual. The SEC makes clear that an investment adviser must tailor its procedures to the Advisers Act and keep them updated. This case is also interesting because the SEC takes the position that a riskless principal transaction executed by an affiliated broker-dealer should be treated as a principal transaction under the Advisers Act.
Posted by Todd Cipperman at 3/15/2011 6:21 AM 
Categories: Compliance and Operations
Tags: compliance principal trading affiliate brokerdealer
Categories: Compliance and Operations
Tags: compliance principal trading affiliate brokerdealer
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