In 2006 when the SEC implemented Rule 206(4)-7 of the Investment Advisers Act, the “Compliance Rule”, we all knew it was only a matter of time before the deficiencies resulting from that Rule would start to pile up. Not because advisers wish to defraud or hurt their clients, but from a general lack of understanding about what was required. Well today the SEC charged three investment advisers for failing to put in place compliance procedures designed to prevent securities law violations.
The cases are the result of a SEC initiative to proactively prevent investor harm by working closely with agency examiners to ensure that viable compliance programs are in place at firms. When SEC examiners identify deficiencies in a firm’s compliance program, those deficiencies need to be corrected before they lead to other securities law violations that could harm investors. Investment advisers that essentially ignore SEC examination warnings risk being the subject of SEC enforcement actions.
The firms being charged with compliance failures in separate cases today are Utah-based OMNI Investment Advisors Inc., Minneapolis-based Feltl & Company Inc., and Troy, Mich.-based Asset Advisors LLC. The SEC also charged OMNI’s owner Gary R. Beynon, who served as the firm’s chief compliance officer despite living in Brazil and performing virtually no compliance responsibilities. Feltl & Company, Asset Advisors, and Beynon will pay financial penalties and institute a series of corrective measures to settle the SEC’s charges.
In two of the cases, OMNI and Asset Advisors, SEC examiners previously warned the firms about their compliance deficiencies.
“Not all compliance failures result in fraud, but many frauds take root in compliance deficiencies,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “That simple truth underlies our renewed focus on identifying and charging firms and individuals that fail their legal obligations to maintain adequate compliance programs.”
Carlo di Florio, Director of the SEC’s Office of Compliance Inspections and Examinations, added, “When SEC examiners identify compliance deficiencies, firms are expected to remediate them. The Commission will take enforcement action against registrants that fail to do so.”
Advisers would be prudent to take a look at their compliance programs and see if they are up to the SEC test. If not, be proactive, time and money spent now can minimize your exposure to regulatory deficiencies and possibly fines. If your program is sound, try running a mock audit and see if you can produce everything the SEC would request in a timely manner. Compliance should be an everyday mindset, not a fire drill.
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.