Adviser Failed to Ensure that Clients were Rule 144A Qualified Institutional Buyers
The SEC fined and censured a wealth manager for allowing its investment adviser representatives to purchase Rule 144A securities for clients that did not qualify as “Qualified Institutional Buyers” under the Rule. According to the SEC, IARs acquired over $600 Million in 144A securities on behalf of non-qualifying clients over a 7-year period. The SEC faults the firm for failing to adopt policies and procedures with respect to the acquisition of 144A securities and failing to supervise and train the IARs.
This is an odd case for a couple of reasons. First, a buyer usually cannot acquire Rule 144A securities without signing a representation that the buyer satisfies the QIB definition, so how did the IARs acquire this volume of 144As? Second, the Advisers Act requires compliance programs to implement policies and procedures reasonably designed to comply with the Advisers Act. Rule 144A comes under the Securities Act of 1933, which would suggest that adviser CCOs should significantly expand their compliance programs to include other securities laws.