The SEC has filed a settled enforcement action against a broker-dealer/investment adviser for failing to supervise one of its owner/principals, thereby allowing the owner/principal to supervise himself.  In a related action, the owner/principal was charged with violating the securities laws in connection with engaging in an unregistered offering outside the broker-dealer.  The SEC charges that the respondent would have detected the owner/principal’s unlawful conduct had it implemented a proper supervisory system including a system to monitor outside business activities.  The SEC charges that the respondent had knowledge of certain “red flags” indicating the conduct including customer complaints. 

OUR TAKE: Failure to supervise an owner/principal is one of the more common factual scenarios in failure to supervise cases.  No BD or RIA employee, even an owner, has license to escape supervision.