SEC Charges Adviser with Violating Compliance Rule
In a recent suit filed in federal court, the SEC has charged an investment adviser with violating Rule 206(4)-7 of the Advisers Act, which requires an adviser to have policies and procedures reasonably designed to prevent violations of the securities laws. The SEC alleges that the adviser overcharged his clients in order to save his failing firm. The SEC alleges that the defendant lacked internal controls and failed to maintain necessary books and records. The SEC charges that the adviser actively thwarted the CCO’s efforts to review customer accounts and complaints. In addition to violations of the compliance rule, the SEC charges violations of the various anti-fraud rules. The SEC has also alleges violations of the Advisers Act’s antifraud rules for not disclosing the firm’s deteriorating financial condition to clients.
OUR TAKE: The SEC has not often charged violations of the compliance rule. This case shows the compound effect of the Advisers Act: any alleged violation may include additional charges for violating the compliance rule and the books and records rule.