COO Stole $6 Million While Oblivious CEO Focused on Portfolio Management
The SEC barred from the industry the Chief Operating Officer of an investment adviser for using his position to overcharge clients and inflate his salary. The COO, a firm co-founder and equity holder, instructed his assistant to assess off-cycle fee deductions, oftentimes charging clients five or six times as “quarterly” fees. He furthered his scheme by instructing the third-party payroll vendor to pay him more than his salary. According to the SEC, the COO bilked his firm out of $6 Million over 8 years. The firm’s CEO, focused on portfolio management, fired the COO when a client alerted him to the overcharging. In addition to the industry bar, the COO also pled guilty to criminal investment adviser fraud.
Do you trust your employees and partners? Are you sure? Would you bet $6 Million on it? All firms, no matter how small, should implement a system of supervision even if the process makes you personally uncomfortable. For close-knit firms, we recommend bringing in a third party compliance resource that can review each person’s activities without creating an accusatory culture.