SEC Penalizes Investment Advisers for Compliance Failures
FOR IMMEDIATE RELEASE
Washington, D.C., Nov. 28, 2011 — The Securities and Exchange Commission today charged three investment advisers for failing to put in place compliance procedures designed to prevent securities law violations.
The cases stem from an initiative within the SEC Enforcement Division’s Asset Management Unit to proactively prevent investor harm by working closely with agency examiners to ensure that viable compliance programs are in place at firms. Investment advisers are required by law to adopt and implement written compliance policies and procedures. When SEC examiners identify deficiencies in a firm’s compliance program, those deficiencies need to be corrected before they lead to other securities law violations that could harm investors. Investment advisers that essentially ignore SEC examination warnings risk being the subject of SEC enforcement actions.
The firms being charged with compliance failures in separate cases today are Utah-based OMNI Investment Advisors Inc., Minneapolis-based Feltl & Company Inc., and Troy, Mich.-based Asset Advisors LLC. The SEC also charged OMNI’s owner Gary R. Beynon, who served as the firm’s chief compliance officer despite living in Brazil and performing virtually no compliance responsibilities. Feltl & Company, Asset Advisors, and Beynon will pay financial penalties and institute a series of corrective measures to settle the SEC’s charges.
In two of the cases — OMNI and Asset Advisors — SEC examiners previously warned the firms about their compliance deficiencies.
“Not all compliance failures result in fraud, but many frauds take root in compliance deficiencies,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “That simple truth underlies our renewed focus on identifying and charging firms and individuals that fail their legal obligations to maintain adequate compliance programs.”
Carlo di Florio, Director of the SEC’s Office of Compliance Inspections and Examinations, added, “When SEC examiners identify compliance deficiencies, firms are expected to remediate them. The Commission will take enforcement action against registrants that fail to do so.”
Under Rule 206(4)-7 of the Investment Advisers Act, which is known as the “Compliance Rule,” registered investment advisers are required to adopt and implement written policies and procedures that are reasonably designed to prevent, detect, and correct securities law violations. The Compliance Rule also requires annual review of the policies and procedures for their adequacy and the effectiveness of their implementation, and designation of a chief compliance officer to be responsible for administering the policies and procedures.
“The failure to adopt and maintain adequate compliance policies and procedures is a significant violation of the federal securities laws,” said Robert Kaplan, Co-Chief of the SEC Division of Enforcement’s Asset Management Unit. “We will continue to work with our counterparts in the national exam program to identify investment advisers that put their investors at risk by failing to take their compliance obligations seriously.”
OMNI Investment Advisors and Gary R. Beynon
According to the SEC’s order in the case against OMNI and Beynon, the firm failed to adopt and implement written compliance policies and procedures after SEC examiners informed OMNI of its deficiencies. Between September 2008 and August 2011, OMNI had no compliance program and its advisory representatives were completely unsupervised. Beynon assumed the chief compliance officer responsibilities in November 2010 while living abroad.
OMNI failed to establish, maintain, and enforce a written code of ethics, and failed to maintain and preserve certain books and records. In response to a subpoena, OMNI produced client advisory agreements with Beynon’s signature evidencing his supervisory approval when, in fact, Beynon had never reviewed the agreements. Beynon backdated his signature on those agreements one day before the documents were produced to the Commission.
Under the settlement, Beynon agreed to pay a $50,000 penalty. He also agreed to be permanently barred from acting within the securities industry in any compliance or supervisory capacity and from associating with any investment company. Additionally, as part of the settlement, OMNI agreed to provide a copy of the proceeding to all of its former clients between September 2008 and August 2011.
Feltl & Company, Inc.
According to the SEC’s order against Feltl & Company, the firm failed to adopt and implement written compliance policies and procedures for its growing advisory business. It further neglected to adopt a code of ethics and collect the required securities disclosure reports from its staff. As a result of its compliance failures, Feltl engaged in hundreds of principal transactions with its advisory clients’ accounts without informing them or obtaining their consent as required by law. Feltl also improperly charged undisclosed commissions on certain transactions in clients’ wrap fee accounts.
Under the settlement, Feltl & Company agreed to pay a penalty of $50,000 and return more than $142,000 to certain advisory clients. Additionally, the firm will hire an independent consultant to review its compliance operations annually for two years, provide a copy of the SEC’s order to past, present and future clients, and prominently post a summary of the order on its website.
Asset Advisors LLC
According to the SEC’s order against Asset Advisors, SEC examiners found that the firm had failed to adopt and implement a compliance program. After SEC examiners brought it to the firm’s attention, Asset Advisors adopted policies and procedures but never fully implemented them. Similarly, Asset Advisors only adopted a code of ethics at the behest of the SEC exam staff and then failed to adequately abide by the code.
Under the settlement, Asset Advisors agreed to pay a $20,000 penalty, cease operations, de-register with the Commission, and — with clients’ consent — move advisory accounts to a firm with an established compliance program.
Feltl & Company, Asset Advisors, OMNI Investment Advisors and Beynon did not admit or deny the allegations. In addition to the penalties, they all consented to cease-and-desist orders and agreed to be censured.
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The SEC’s investigation of OMNI and Beynon was conducted by John Mulhern and James Scoggins of the Denver Regional Office. The SEC examination was conducted by Julie Sperling of the Salt Lake Regional Office and Mark Snyder, Nicholas Madsen and Thomas Piccone of the Denver Regional Office.
The SEC’s investigations of Feltl & Company and Asset Advisors were conducted by Margaret Gembala Nelson and Paul Montoya of the Chicago Regional Office. The SEC examinations were conducted by Todd Bielskis, Frank Ronis, Sharon Larson, Diane Farley, Kiley Hamilton, Emad Elsebaie, Lou Gracia, Tom Kirk and Steve Levine of the Chicago Regional Office.
Investigations related to the Asset Management Unit’s compliance program initiative are continuing.
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For more information about the compliance program initiative contact:
Robert Kaplan (202-551-4969) and Bruce Karpati (212-336-0104)
Co-Chiefs, Asset Management Unit, SEC’s Division of Enforcement
For more information about the enforcement actions, contact:
OMNI Investment Advisors, Inc. and Gary Beynon
Regional Director, SEC’s Denver Regional Office
Associate Regional Director, SEC’s Denver Regional Office
Feltl & Company and Asset Advisors LLC
Merri Jo Gillette
Regional Director, SEC’s Chicago Regional Office
Senior Associate Regional Director, SEC’s Chicago Regional Office
Assistant Director, Asset Management Unit, SEC’s Chicago Regional Office