12/01/2011 08:09:00 AM EST
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.
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