BD TO PAY NEARLY $3 MILLION FOR AIDING/ABETTING 1940 ACT VIOLATIONS
A large broker-dealer agreed to pay nearly $3 Million in disgorgement, interest, and penalties in connection with providing gifts and entertainment to obtain trading business from a large mutual fund manager. The SEC alleged that the BD failed to properly supervise its personnel, thereby allowing them to aid and abet the mutual fund manager’s violation of Section 17(e) of the Investment Company Act (affiliate receiving compensation). Two supervisors and two registered reps also agreed to pay fines and accepted bars from the industry. The SEC charged that the firm spent over $600,000 on lavish trips, entertainment, and a bachelor party.
OUR TAKE: It is noteworthy that the underlying cause of action alleged by the SEC was aiding and abetting a violation of the Investment Company Act. This suggests that a broker-dealer must be mindful not only of the laws and regulations applicable to it but also to those applicable to its clients. Extending this reasoning, a broker-dealer should examine its policies and procedures when dealing with regulated entities such as mutual funds and employee benefit plans.