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Red Oak Blog

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Monday, June 13 2011

SEC Alleges Former Employee of Investment Adviser Aided and Abetted the Violation of SEC Rule 204-2 (Books & Records Requirements)

On June 6, 2011, the U.S. Securities and Exchange Commission (“SEC”) charged a long time employee at Bernard L. Madoff Investment Securities LLC (“BMIS”) with “aiding and abetting violations of Section 204 and Rule 204-2 of the Investment Advisers Act of 1940 (the Adviser Books and Records Violations).”

The SEC alleges that BMIS, “failed to make, maintain on its premises, or keep accurate, certain books and records required by law.” The SEC noted several examples where the firm failed to maintain accurate cash receipts, disbursement records, accurate ledgers, and failed to keep true and accurate bank statements, cancelled checks and cash reconciliations. This is a violation of the Books and Records requirements. The SEC alleges that as an employee in investment advisory operations, the BMIS employee assisted in falsifying documents, making repeated material misrepresentations, and generated fictitious account statements; thus, violating the Investment Advisers Act of 1940, Rule 204-2 and perpetuating the firm’s violations. One has to wonder how many more BMIS employees have yet to be charged?