Three investment advisory firms agreed to pay a total of $262,000 to settle Securities and Exchange Commission allegations that they failed to put in place and implement required compliance procedures.
Three investment advisory firms agreed to pay a total of $262,000 to settle Securities and Exchange Commission allegations that they failed to put in place and implement required compliance procedures.
The three separate cases are a result of the agency's increased efforts to root out procedural deficiencies through adviser examinations in an attempt to proactively prevent investor harm.
In one case, Feltl & Co. Inc. agreed to pay a $50,000 fine and return $142,000 to certain clients for its compliance failures, which resulted in the firm engaging in hundreds of principal transactions with its clients' accounts without obtaining their consent, the SEC said. The Minneapolis-based firm also agreed to hire an independent consultant and post a summary of the consent order on its website, the commission said.
In another case, Draper, Utah-based Omni Investment Advisors Inc. and its owner and chief compliance officer, Gary R. Beynon, failed to adopt and implement policies and procedures even after the SEC told them about compliance deficiencies, the SEC said. Mr. Beynon, who lived in Brazil and performed virtually no compliance responsibilities even though he was CCO, agreed to pay a $50,000 fine and was barred from acting in any compliance or supervisory role within the securities industry, the SEC said.
“Not all compliance failures result in fraud, but many frauds take root in compliance deficiencies,” said Robert Khuzami, director of the SEC's enforcement division, said in a statement. “That simple truth underlies our renewed focus on identifying and charging firms and individuals that fail their legal obligations to maintain adequate compliance programs.”
In the third case, Asset Advisors LLC of Troy, Mich., agreed to pay a $20,000 penalty and cease operations to settle allegations it failed to implement a compliance program even after SEC examiners pointed out deficiencies and the firm adopted policies. The firm adopted a code of ethics when the agency directed it to, but then failed to abide by it, the SEC said.
Asset Advisors' attorney, Stuart Sinai, said the firm's founder, Carl Gil, was in the process of transferring clients to another firm with more-experienced compliance supervision even before settling the SEC matter.
“That's what he's wanted to do all along,” Mr. Sinai said. He also pointed out the SEC did not accuse Mr. Gil of wrongdoing and said he was surprised the SEC is going after such a small firm. Asset Advisors reported having six employees and assets under management of $27 million as of May 2011, the SEC said.
“But I understand they want to make sure people are compliant so more-serious things aren't done in the future,” Mr. Sinai said.
Feltl’s general counsel Chet Taylor said the order relates solely to the firm’s asset-based business, which makes up about 5% of its total business. Feltl’s larger commission-based brokerage business was not part of the order, he said.
“We applied the same supervisory procedures to advisory accounts as to brokerage accounts on the mistaken belief that they should be treated the same,” Mr. Taylor said. “Later we learned the SEC expects enhanced procedures for the advisory accounts and now we have those in place.”
A lawyer for Omni and Mr. Beynon did not return a call seeking comment.
