SEC Charges Investment Adviser for Failure to Implement Reasonably Designed Policies and Procedures to Protect Client Assets
June 30, 2021
File No. 3-20381
June 30, 2021 - The Securities and Exchange Commission today announced charges against Securities America, Inc. ("SAA"), a Nebraska-based investment adviser, for failing to implement policies and procedures reasonably designed to protect the misappropriation of advisory client assets, which resulted in the misappropriation of millions of dollars from SAA's clients' advisory accounts.
According to the Order, from November 2014 to March 2018, SAA adopted the policies of Securities America, Inc. ("SAI") - the introducing broker for its advisory clients that is owned by the same parent company as SAA - for safeguarding client assets from misappropriation, and delegated to SAI responsibility for surveilling SAA advisory accounts. Three SAI units, the Financial Investigations Unit ("FIU"), Cashiering, and Trade Support, held primary responsibility for identifying potential misappropriation of SAA client assets, but they failed to implement required policies and procedures. As set forth in the Order, FIU's automated Trade Monitor surveillance system generated multiple alerts for potentially suspicious withdrawals from client accounts, but its analysts failed to carry out the prescribed processes for investigating those alerts. Cashiering permitted disbursements without the required signatures, and Trade Support failed to contact clients to verify that they had initiated disbursement requests and, when they did carry out verification procedures, failed to obtain the required information from clients.
As set forth in the Order, as a result of these failures, Hector May, the owner of an independent state-registered investment adviser whose clients participated in certain SAA advisory programs, misappropriated, without SAA's detection, approximately $8 million from the SAA advisory accounts of at least fifteen SAA advisory clients. The Commission charged ["charged" will be hyperlinked to the May press release located here: https://www.sec.gov/news/press-release/2018-283] May in federal district court in December 2018 with securities fraud for his theft of client assets.
The SEC's order finds that SAA violated Section 206(4) of the Investment Advisers Act of 1940 (the "Advisers Act") and Rule 206(4)-7 thereunder. Without admitting or denying the SEC's findings, SAA consented to the entry of an order censuring it and requiring it to cease and desist from further violations, comply with an undertaking to retain an independent compliance consultant, and pay a $1,750,000 civil monetary penalty.
The SEC's investigation was conducted Tracy Sivitz, Frank Milewski, and Sandeep Satwalekar and was supervised by Lara Shalov Mehraban.