A PROACTIVE APPROACH TO ENSURE ADVISORS ADOPT PROCEDURES
The reorganization of the Division of Enforcement which spawned the re-introduction of specialty groups was, in part, designed to focus the resources of the Division and increase efficiency and effectiveness. Three recently filed cases are an example of the results of the reorganization and the creation of specialty units. In the Matter of Asset Advisors, LLC, Adm. Proc. File No. 3-14644 (Nov. 28, 2011); In the Matter of Feltl & Company, Inc., Adm. Proc. File no. 3-14645 (Nov. 28. 2011); and In the Matter of Omni Investment Advisers Inc., Adm. Proc. File No. 3-14643 (Nov. 28, 2011). Each proceeding is against an investment adviser. Each Order alleges compliance failures. Each proceeding stems from an initiative between Enforcement’s Asset Management Unit and SEC examiners to proactively protect investors by ensuring that advisers have the required compliance policies and procedures in place.
The proceeding against Asset Advisors centers on the failure of the registered investment adviser to adopt written compliance policies and procedures from October 2004 through April 2007. From January 2005 through early 2007 the firm also failed to adopt a written code of ethics. Following an alert from the examination staff on each issue the firm adopted written compliance policies and procedures in May 2007 and a code of ethics. It failed, however, to fully implement a compliance program. It also failed to enforce the code of ethics by collecting written acknowledgements that supervised persons had received a copy and the required periodic reports. The firm resolved the proceeding by consenting to the entry of a censure and a cease and desist order based on Advisers Act Sections 204A and 206(4). It also agreed to pay a civil penalty of $20,000. In addition, the firm agreed to implement certain undertakings.
The second proceeding is against Felti & Company, Inc., a registered broker-dealer and investment adviser. As the firm’s business grew and evolved, it failed to adopt the required policies and procedures for its advisory business. Specifically, Felti failed to adopt and implement comprehensive written compliance policies for that business from early 2008 through March 2011. It also failed to adopt a code of ethics. As a result the firm engaged in hundreds of principal transactions with its advisory client accounts without making the proper disclosures and obtaining the necessary consents. The firm also charged undisclosed fees to its clients who participated in the wrap fee program by charging the wrap fees and commissions. In April 2011, as a result of the exams and investigation by the staff, the firm adopted a new compliance manual for its advisory business. The Order alleges violations of Advisers Sections 206(2), (3) and (4) as well as 204A. The firm resolved the proceeding by consenting to entry of a cease and desist order based on the cited sections and a censure. It also agreed to pay disgorgement of $142,527 along with prejudgment interest, the applicable portions of which shall be paid to the affected advisory clients. The firm will also pay a civil penalty of $50,000 and implement certain procedures including the retention of an independent consultant.
The proceeding against OMNI Investment Advisors is similar. That proceeding names as Respondents the firm and its sole owner and CEO, Gary Beynon. In a manner similar to the other two proceedings, OMNI failed to adopt and implement a compliance program between September 2008 and August 2011. Similarly, the firm failed to establish, maintain and enforce a written code of ethics and to maintain and preserve certain books and records. For much of the period the firm also did not have a Chief Compliance Officer. In November 2010 Mr. Beynon assumed that position. He preformed virtually no responsibilities however since he was living in Brazil. Nevertheless, in response to a subpoena OMNI produced client advisory agreements signed by Mr. Beynon. The agreements reflected his supervisory approval. In fact the dates on the agreements were not correct. Rather, Mr. Beynon executed the documents the day before they were produced to the staff. To resolve the proceeding the Respondents consented to the entry of censures and cease and desist orders based on Advisors Act Sections 204(a), 204A, 206(4) and the related rules. Mr. Beynon also agreed to a bar from serving in a supervisory capacity in the securities business and to the pay of a $50,000 civil penalty. The firm agreed to implement certain undertakings.