The Securities and Exchange Commission (“SEC”) has fined and censured a broker-dealer/registered investment adviser $450,000, fined and suspended a supervisor for twelve months for failing to stop two rogue brokers from selling an unauthorized private placement for which they received commissions and barred permanently and fined the two rogue brokers.
According to the SEC, the brokers sold the fund to over 125 clients in a 14-year period using the firm’s offices and sent the clients statements from the firm’s client reporting system. The SEC faults the firm for failing to adopt reasonable policies and procedures governing the use of its client reporting system and the supervisor for allowing the brokers to select which files to be reviewed every year rather than taking a random sample.
To read the complete Administrative Proceedings Document, please click here.
The regulators are looking at consolidated statements since they are so easy to fabricate. Firms should never allow manual changes to be made to client reporting documents. There should also be base reporting templates that are made available after they have been reviewed by compliance for representatives to use with clients. There are specific disclosures that need to be included on these statements.
Firms also must ensure that supervisors stay in line with the compliance program and follow the firm’s policies and procedures, including those involving selling away. If you have any questions about how your reporting system works or could be improved, please give us a call to discuss.
About Red Oak Compliance Solutions
Red Oak Compliance Solutions is the global advertising review software of choice in the financial services industry. It is a comprehensive suite of SEC 17A-4 compliant features that are 100% books and records compliant and provides clients with 35% faster approvals and 70% fewer touches or better. We also offer Smart Review(SM), which solves for the storage and maintenance of disclosures, helping firms reduce risk, decrease review times, and increase the speed of distribution of marketing materials. Smart Registration(SM) automates the licensing and registration management process to help reduce regulatory risk and time spent on manual processes. Overall, Red Oak allows firms to minimize risk, reduce costs, and increase compliance review process effectiveness and efficiencies.