The SEC has been exerting its force with the registered investment adviser community this year. Several enforcement cases made public by the SEC have focused on registered advisers and their principals. The cases themselves vary regarding allegations, but the message is clear – investment advisers with weak compliance programs will pay, literally.
A summary of recent cases is below:
| Case Name | Summary of Allegations | Total Fines or Status | Key Takeaway |
|---|---|---|---|
| Barclays Capital Inc. | Multiple violations in relation to the integration of the Lehman advisory business in 2008 | $15,000,000 | Systemic failures resulted from firm not updating its processes for RIA business; relied upon B/D platform for RIA business |
| TL Ventures Inc. | Pay-to-Play and registration violations; adviser associate made political contributions to elected officials while managing funds of pensions the officials influenced; adviser was unregistered | $294,894 | First Pay-to-Play, Rule 206(4)-5 case brought by SEC |
| Structured Portfolio Management, LLC (and its two hedge funds) | Compliance Rule violations in relation to lack of policies and controls surrounding trade allocations | $300,000 | Case involved trading conflict, but only charged with Rule 206(4)-7 violations |
| Edgar R. Page and Pageone Financial Inc. | Fraud in relation to the acquisition of the firm by private fund manager with multiple undisclosed conflicts | Case pending | Firm owner/CCO named; investors were told it was just a solicitor relationship with private fund manager |
| Westend Capital Management, LLC | Hedge fund fees were overcharged and misappropriated by a managing member | $150,000 | Firm charged with failure to supervise; firm hired compliance consultant proactively upon discovery |
| Strategic Capital Group, LLC and N. Gary Price | Numerous principal trading violations; best execution violations; fraud in relation to performance advertising | $636,290.50 | CEO/CCO named; best execution violations regarding fixed income transactions with related B/D (mark- ups) |
| Paradigm Capital Management, Inc. and Candace King Weir | Whistleblower case; numerous principal transactions between affiliates; multiple conflicts undisclosed; whistleblower retaliation | $1,700,000 | Weir President of both RIA and B/D affiliate; Whistleblower was firm head trader; conflicts committee for cross-trades insufficiently disclosed to investors and members conflicted |
The above cases highlight how crucial it is for advisers to have customized policies and procedures that are properly implemented to prevent and detect potential compliance violations. The Compliance Rule, Rule 206(4)-7, was named in four out of seven cases.
