BD/RIA Sanctioned for Failing to Supervise Firm’s Owner/Principal
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.