Readers of this space – and SEC observers generally – will recall a March 4 risk alert designed to warn investors about the ways U.S. investment advisers had recently been found to have violated the SEC’s asset custody rule. The number and variety of violations were legion. Advisers were not assuring themselves that clients were… Continue Reading
Category Archives: Non-scienter-based Violations
Subscribe to Non-scienter-based Violations RSS FeedAccounting Fraud Not Just for Public Companies Anymore
Posted in Accounting Fraud, Investment Advisers, Non-scienter-based Violations, Private EquityOne of the salient features of the SEC’s enforcement program in recent years has been a dearth of accounting fraud cases. While those cases used to be the SEC’s bread and butter, and hovered around 200 actions per year, they have dropped off dramatically since 2007, and hit a low of 79 last year. Only… Continue Reading
SEC Ramps Up Its Private Equity Parade
Posted in Broker-Dealers, Investment Advisers, Non-scienter-based Violations, Private EquityBruce Karpati, chief of the SEC’s Asset Management Unit, promised us several weeks ago that enforcement actions against private equity firms were about to heat up. He wasn’t kidding. Last Monday, the SEC filed two sets of settled administrative proceedings against private equity firms. We’ll discuss one of them today, and the second in a… Continue Reading
SEC Issues Risk Alert on Investment Adviser Custody Rule
Posted in Auditors, Compliance, Investment Advisers, Non-scienter-based ViolationsThe SEC can express its displeasure with a particular securities practice in a number of different ways, with increasing levels of fun for the alleged malefactor. Here’s a non-exhaustive list: One thing it can do is file an enforcement action in federal or administrative court. This option is not fun at all. It’s not as… Continue Reading
SEC Charges Indian Firms with Acting as Unregistered Broker-Dealers
Posted in Broker-Dealers, Non-scienter-based ViolationsOn November 27th, the SEC charged four Indian financial services firms with acting as unregistered broker-dealers in the United States. The firms were accused of providing brokerage services to institutional investors in the U.S. without registering with the SEC as required by Section 15(a) of the Exchange Act. The SEC censured the firms, who paid… Continue Reading
SEC Charges Allianz with FCPA Violations
Posted in FCPA, Non-scienter-based Violations, WhistleblowersOn December 17th, the SEC brought a settled administrative FCPA action against Allianz SE, a German insurance company with a subsidiary in Indonesia. The order does not allege violations of the FCPA’s antibribery provisions, but does claim violations of its books-and-records and internal controls provisions. As the summary in the SEC’s order says, the proceedings… Continue Reading
SEC’s Asset Management Unit Focuses on Compliance Failures, Vol. 2
Posted in Compliance, Investment Advisers, Non-scienter-based ViolationsAs we discussed last month, the SEC’s Asset Management Unit has developed a likeness for not just big, headline-grabbing cases, but relatively small compliance-based cases that are designed to prevent minor problems from growing into large ones. People like to say that the damage is done before the SEC ever gets involved, and that is… Continue Reading
SEC’s Asset Management Unit Focuses on Compliance Failures, Vol. 1
Posted in Compliance, Investment Advisers, Non-scienter-based ViolationsThe SEC Enforcement Division’s Asset Management Unit has brought some substantial cases over the last year, including a number arising out of its Aberrational Performance Inquiry. Another focus for the unit has been compliance failures at registered investment advisers. On November 20th, the unit filed a pair of administrative cases addressing some of those failures. … Continue Reading
SEC Sues Auditor for Failing to Audit
Posted in Accounting Fraud, Auditors, Financial Fraud, Microcap Fraud, Non-scienter-based ViolationsThis world has a lot of problems that require fixing, but I dare say that scratch-off lottery tickets is not one of them. Still, that is the problem that Lee Cole and Linden Boyne ventured to solve through Electronic Game Card, Inc. (EGMI), a company that tried to develop credit card-sized electronic games that could… Continue Reading
FINRA Expels Biremis Corp. for Anti-Money Laundering Abuses
Posted in Broker-Dealers, FINRA, Non-scienter-based ViolationsOn July 30th, FINRA expelled broker-dealer Biremis Corporation and permanently barred Biremis’s CEO, Peter Beck, from association with any FINRA member firm in any capacity. FINRA found Biremis and Beck liable for a host of violations. FINRA alleged that among other things, Biremis failed to implement an adequate anti-money laundering (“AML”) program, failed to maintain… Continue Reading
Khuzami Touts SEC’s Focus on Compliance
Posted in Compliance, Insider Trading, Investment Advisers, Non-scienter-based ViolationsThe SEC’s Enforcement Director, Rob Khuzami, gave an interview to Thomson Reuters last week that you should read. These things are always edited, so it’s hard to know in what order he spoke, but as it is written he gets the interview off to an interesting start. He does not crow about any particularly “big”… Continue Reading
SEC Charges AXA Advisors with Failure to Supervise
Posted in Broker-Dealers, Investment Advisers, Non-scienter-based ViolationsThe SEC has brought two failure-to-supervise cases in the last several days. I’ll cover both in the order of their release. The first of this duo was against AXA Advisors, which failed to supervise a registered representative with the comically villainous name of Leo T. Buggy. Buggy operated out of a single-representative office in Rock… Continue Reading
SEC Amends Settlement Policy! (but not really)
Posted in Non-scienter-based Violations, Parallel ProceedingsI was briefly stunned on Friday to read this headline in the New York Times: SEC Changes Policy on Firms’ Admissions of Guilt. My shock didn’t last long. Had the SEC abandoned its longstanding policy of allowing settling defendants to do so without either admitting or denying the allegations in accompanying complaints? Well, the Commission… Continue Reading
SEC Targets Insider Trading Compliance Failures
Posted in Broker-Dealers, Compliance, Insider Trading, Non-scienter-based ViolationsIn light of Cady’s recent IA compliance gala celebration, I thought I would spend a post discussing In re Janney Montgomery Scott LLC, Admin. Proc. File No. 3-14459 (July 11, 2011), a compliance matter involving a broker-dealer. The case was based in Section 15(g) of the Exchange Act, which requires all registered broker-dealers to establish, maintain,… Continue Reading
SEC Sues IAs for Compliance Failures, Part III
Posted in Compliance, Investment Advisers, Non-scienter-based ViolationsIn the final chapter of this Cady Bar the Door investment adviser extravaganza, we examine In re Feltl & Company, Inc., Admin. Proc. File No. 3-14645 (Nov. 28, 2011). Minneapolis-based Feltl & Co. is a dually-registered broker-dealer and investment adviser, and substantially larger than the other two IAs in the trio, OMNI and Asset Advisors…. Continue Reading
SEC Sues Investment Advisers for Compliance Failures, Part II
Posted in Compliance, Investment Advisers, Non-scienter-based ViolationsThe second of three cases the SEC’s Asset Management Unit brought against registered investment advisers on November 28th, In re OMNI Investment Advisors Inc., Admin Proc. File No. 3-14643 (Nov. 28, 2011), was much like Asset Advisors. OMNI, based in Draper, Utah, had about 190 clients with approximately $65 million in assets under management. OMNI… Continue Reading
SEC’s Asset Management Unit Picks Up Its Game
Posted in Compliance, Investment Advisers, Non-scienter-based ViolationsThe SEC’s Asset Management Unit is making its presence felt. Last week the unit brought a slew of cases against investment advisers and hedge funds that put the group on the forefront of the Enforcement Division’s efforts to remake itself after the Bernard Madoff fiasco. Though the two groups of cases were obscured by Judge… Continue Reading
SEC (Smartly) Focuses on Transfer Agents
Posted in Microcap Fraud, Non-scienter-based ViolationsEnforcement investigations into microcap, or penny, stocks are difficult and often thankless. They frequently involve unsavory characters who could as easily be running a real estate scam or Nigerian advance fee fraud as one involving securities. Proving intent to defraud in cases like this is often very tough, as the players shield their activities behind… Continue Reading