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New Owners are Liable for Misconduct Prior to Acquisition

Tuesday, September 8, 2015

I have seen this happen several times now so it is definitely worth discussing. MacKensen & Company, Inc, a registered investment adviser, and the former owner of the firm, Warren MacKensen, were both fined and censured for the conduct of Warren MacKensen relating to misleading advertising. From 2010-2012, Warren MacKensen used hypothetical back-tested performance to claim that the firm’s investment models would have outperformed. He never disclosed that the models did not exist during the time periods displayed or include any of the required disclosures when illustrating back-tested performance. The firm was fined $100,000 and required to send the enforcement order to its clients, even though this violation occurred prior to their acquisition of the firm in 2012. It should be noted however, that Warren MacKensen continued to the firm’s Chief Compliance Officer until July 2014 and continued to be an employee until 2015.

It is interesting to note that no violations were mentioned except for those that occurred from 2010-2012, so it appears the new owners cleaned up the issues after they took over. It would be interesting to see the purchase contract to see if only the firm’s assets were purchased or if it was a full transfer and assets and liabilities. The moral of the story is, spend the time to look at more than the AUM when you acquire a firm.

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Red Oak Compliance Solutions is a leading provider of intelligent compliance software, offering a range of AI-powered solutions designed to help firms of all sizes successfully navigate the increasingly complex regulatory landscape. Our suite of 17(a)-4/WORM compliant features offer risk minimization, cost reduction, and process optimization capabilities with features that are designed to evolve with our client’s needs. Our flagship advertising review software enables firms to deliver compliant content to the market with confidence, faster. Our Disclosure Management and Intelligence solution simplifies the management of disclosures, while our Registration Management solution automates and streamlines the licensing and registration process, further enhancing your internal processes. 

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