Adviser and Principals Including CCO Punished for Weak Compliance Program
An investment adviser and its two principals, one of whom served as its Chief Compliance Officer, agreed to censures and fines for failing to disclose compensation earned by an affiliated broker-dealer and for failing to implement an effective compliance program. The SEC alleged that the firm’s affiliated introducing broker earned a portion of the float on uninvested cash balances and earned fees from riskless principal transactions. The SEC charged that the firm did not disclose the compensation in its ADV or obtain client consent for principal transactions. The SEC also charged the firm with violations of the Compliance Rule (206(4)-7) because the policies and procedures were designed for a broker-dealer firm and had not been updated for 2 years to reflect changes in the law. Also, the SEC claimed that the firm’s Code of Ethics did not require an initial holdings report or duplicate brokerage account statements.