UNITED STATES OF AMERICA
In the Matter of
DEPRINCE, RACE & ZOLLO,
ORDER INSTITUTING CEASE-AND-DESIST PROCEEDINGS PURSUANT TO SECTION 203(K) OF THE INVESTMENT ADVISERS ACT OF 1940, MAKING FINDINGS AND IMPOSING A CEASE-AND-DESIST ORDER
The Securities and Exchange Commission ("Commission") deems it appropriate to institute cease-and-desist proceedings against DePrince, Race & Zollo, Inc. ("DRZ") and John D. Race ("Race") pursuant to Section 203(k) of the Investment Advisers Act of 1940 ("Advisers Act").
In anticipation of the institution of these proceedings, DRZ and Race have submitted Offers of Settlement (the "Offers"), which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying any of the findings contained herein, except as to the jurisdiction of the Commission over them and over the subject matter of these proceedings, which are admitted, DRZ and Race consent to the entry of this Order Instituting Cease-and-Desist Proceedings Pursuant to Section 203(k) of the Investment Advisers Act of 1940, Making Findings, and Imposing a Cease-and-Desist Order ("Order") by the Commission.
Accordingly, IT IS HEREBY ORDERED that proceedings pursuant to Section 203(k) of the Advisers Act be, and hereby are, instituted.
On the basis of this Order and the Offers submitted by Respondents DRZ and Race, the Commission finds that:
1. DRZ is an investment adviser that has been registered with the Commission pursuant to Section 203 of the Advisers Act since 1995. DRZ is located in Orlando, Florida.
2. Race, age 46, is a co-founder and principal of DRZ, and one of its portfolio managers.
3. DRZ provides investment advisory services on a discretionary basis to
approximately 50 institutional clients, most of whom are pension and profit sharing plans and trusts. Currently, DRZ manages about $1.9 billion in client assets.
4. On October 10, 2000, Race joined the board of directors (the "board") of a publicly traded company ("Company A"), whose common stock Race had purchased for himself and in the accounts of several of DRZ's advisory clients. After joining its board, Race continued to purchase Company A shares, both for himself and for DRZ's advisory clients.
5. When Race joined Company A's board, Race and DRZ generally orally disclosed Race's board membership to DRZ's clients who owned Company A stock. However, DRZ did not amend Item 9(D) of its Form ADV until September 2001 to reflect that DRZ recommends to clients that they buy or sell securities or investment products in which DRZ or a related person has some financial interest. Further, DRZ did not describe in Schedule F to its Form ADV any procedures that DRZ had established to address the possible conflicts of interest that Race's membership on Company A's board or ownership of Company A's stock might present until September 2001. DRZ amended its Form ADV to make these disclosures in September 2001 after a routine examination of DRZ by the Commission's staff. DRZ's delay in not making these amendments until September 2001 did not meet the requirements of Section 204 of the Advisers Act or Rule 204-1 thereunder, which requires that investment advisers promptly amend material inaccuracies in their Form ADV. Race has signed all of DRZ's filings with the Commission since October 10, 2000.
6. After Race joined Company A's board, DRZ failed to meet the requirements of Section 204A of the Advisers Act, which requires investment advisers to establish, maintain and enforce written policies and procedures reasonably designed, taking into consideration the nature of their business, to prevent the misuse of material nonpublic information by the adviser or any person associated with it. DRZ failed to amend the policies that it maintained pursuant to Section 204A adequately to take into account the special circumstances presented by Race's dual role as a member of the board of directors of Company A, and a portfolio manager at DRZ. For example, DRZ's policies and procedures relied primarily on Race to determine when he came into possession of material, non-public information about Company A.
7. As a result of the foregoing, Respondent DRZ violated Section 204 of the Advisers Act and Rule 204-1 thereunder, by not promptly filing an amendment to its Form ADV to correct information that became inaccurate in a material manner. Race, as the DRZ principal who signed DRZ's Commission filings, was a cause of DRZ's violation of Section 204 of the Advisers Act and Rule 204-1 thereunder.
8. As a result of the foregoing, Respondent DRZ violated Section 204A of the Advisers Act, by failing to establish, maintain, and enforce written policies and procedures reasonably designed, taking into consideration the nature of DRZ's business, to prevent the misuse of material, non-public information by DRZ and any person associated with it.
In determining to accept the Offers submitted by DRZ and Race, the Commission considered remedial acts promptly undertaken by DRZ and Race, and the cooperation afforded by them to the Commission staff.
On the basis of the foregoing, the Commission deems it appropriate to accept the Offers submitted by DRZ and Race.
ACCORDINGLY, IT IS ORDERED that:
A. DRZ shall cease and desist, pursuant to Section 203(k) of the Advisers Act, from committing or causing any violation and any future violation of Sections 204 and 204A of the Advisers Act, and Rule 204-1 thereunder;
B. DRZ shall comply with its undertakings to:
1. Retain an Independent Consultant (the "Consultant"), not unacceptable to the staff of the Commission, at DRZ's expense, within thirty (30) days of the entry of this Order, to conduct a comprehensive review of the policies, procedures, and practices maintained and implemented by DRZ pursuant to Section 204A of the Advisers Act;
2. Provide the Commission's staff, within thirty (30) days of the entry of this Order, with a copy of an engagement letter detailing the scope of the Consultant's responsibilities;
3. Cooperate fully with the Consultant, including providing the Consultant with access to its files, books, records, and personnel as reasonably requested for the above-mentioned review, and obtaining the cooperation of DRZ's partners, employees or other persons under its control;
4. Require the Consultant, at DRZ's expense, to prepare a report making recommendations as to DRZ's policies, procedures, and practices maintained and implemented by DRZ pursuant to Section 204A of the Advisers Act and to deliver said report to the Commission's staff within ninety (90) days of the issuance of the Order. DRZ may apply to the Commission's staff for an extension of this deadline and, upon a showing of good cause by DRZ, the Commission's staff may grant such extension for whatever time period it deems appropriate, but in no event shall the deadline exceed one hundred and thirty-five (135) days from the date of the Commission's Order; and
5. Adopt all recommendations by the Consultant in the report within six (6) months after its issuance; provided, however, that as to any of the Consultant's recommendations that DRZ determines is unduly burdensome or impractical, DRZ may suggest an alternative procedure designed to achieve the same objective, submitted in writing to the Consultant and the Commission's staff. The Consultant shall reasonably evaluate DRZ's alternative procedure and DRZ shall abide by the Consultant's determination with regard thereto and adopt such recommendations. DRZ also shall, within six (6) months after the issuance of the Consultant's report, submit to the Commission's staff an affidavit attesting to its implementation of the recommendations contained in the Report, setting forth the details of such implementation.
C. Race shall cease and desist, pursuant to Section 203(k) of the Advisers Act, from causing any violation and any future violation of Section 204 of the Advisers Act and Rule 204-1 thereunder.
By the Commission.
|Home | Previous Page||