CCO Fined and Censured for Allowing President to Steal Client Funds 

The SEC censured and fined the Chief Compliance Officer of a registered investment adviser for failing to implement procedures that could have stopped misappropriation of client assets.  The SEC alleges that the firm’s President used his signature authority for client accounts to take client funds and use their credit cards.  The firm serviced professional athletes with family office services that included bill payment.  The SEC asserts that the firm’s policies and procedures did not ensure secondary review of all payments made from client accounts.  Also, the firm did not follow its own procedures by failing to conduct annual reviews of cash movements.  Additionally, the CCO did not conduct an annual compliance review in 2011.

OUR TAKE: Firms should avoid assuming signature authority over client funds.  If the business requires that the firm offers such services, CCOs must implement very tight procedures including requiring at least two signatures to move funds and ongoing (monthly?) reviews of cash disbursements.