SEC Announces Compliance Penalties Against Investment Advisory Firms, Executives

SEC Compliance Investment Adviser Enforcement

On October 23, the SEC announced penalties totaling $400,000 against three investment advisory firms and their executives for allegedly repeatedly ignoring problems with their compliance programs, which the SEC deemed inadequate to prevent misleading statements in marketing materials or inadvertent overbilling of clients. The penalties ranged from $25,000 for individuals to $100,000 for one of the firms. Among other things, the SEC highlighted the following deficiencies, which varied among the firms: (i) failing to complete annual compliance reviews, (ii) making misleading statements on company’s website and investor brochures by overstating the amount of assets under management while contradicting the amount the firm presented in its SEC filing, (iii) failing to adopt and implement written compliance policies and procedures, (iv) making false and misleading disclosures about historical performance, compensation, and conflicts of interest, (v) repeatedly over- and under-billing clients, (vi) failing to disclose known compliance deficiencies to potential clients in response due diligence questionnaires or requests for proposals, (vii) inflating the amounts of assets under management in SEC filings, and (viii) improperly removing and retaining nonpublic personal client information by an executive who left one of the firms. In addition to agreeing to the penalties, the firms agreed to hire compliance consultants and adopt specific compliance enhancements. The SEC took the actions as part of its Compliance Program Initiative, which targets firms that fail to effectively act upon SEC warnings about compliance deficiencies.