Every now and then, the Securities and Exchange Commission (SEC) encounters a case that serves as a textbook example of everything that can go awry when a firm deems fraud more important that fiduciary responsibility.
On December 19, 2019, the SEC filed a complaint against a recidivist investment advisor that resembles a checklist of what every investment advisory firm should not do to earn and maintain client trust.
Among the charges the SEC made in its complaint against Sacramento, Calif.-based investment advisory firm Springer Investment Management and owner Keith Springer were violations of advertisements, compliance, required disclosures, SEC reporting, and recordkeeping.
As part of his elaborate attempts to defraud retirees, Springer hired Internet search suppression consultants to hide his disciplinary history with the New York Stock Exchange and also told employees not to provide the information to prospective clients.
The SEC charged Springer with making false and misleading advertisements on his radio program, for failing to disclose many conflicts of interest, for a series of Form-ADV violations, for having an inadequate compliance program, and for failing to keep required books and records. Springer was able to facilitate his fraudulent scheme for five years, in part, because he was both his firm’s CEO and Chief Compliance Officer.
What’s an Employee to Do?
Firms are required to have a whistleblower policy outlined in their compliance manual. But even inexperienced employees could sense that policies and procedures were lacking at the firm and those the company had weren’t being followed.
In reality, most employees don’t know how or where to voice their concerns when they suspect laws are being broken. Firms stand to benefit from providing employees with guidance and training on whistleblowing policies and procedures and fostering a culture of fiduciary responsibility.
Take These Steps that Springer Didn’t
One of the most blatantly fraudulent actions Springer took was the production of his own radio show, "Smart Money with Keith Springer." He did so with the purpose of attracting prospective clients. He misled them into believing he was selected to host the show because of his industry expertise. But Springer paid to broadcast the show.
“The SEC’s proposed advertising rules are currently under review, but the steps a firm should take remain the same,” says Adam Stutz, compliance consultant for Core Compliance and Legal Services. “The compliance department must review any material before any representative of the firm appears on any broadcast medium. No promissory statements can be made and certain rules apply when talking about individual stocks. It’s best to stay generic with statements you make.”
The SEC has made information available to investors in an Investor Alert about the role radio programs in particular can play in soliciting victims for investing schemes as Springer successfully did for years while defrauding hundreds of senior retail investors.
With the SEC’s advertising rules about to undergo their biggest changes in almost 60 years, it’s a good time to revisit your policies and procedures and make certain they’re up to date. Let the experts at Core Compliance & Legal Services help. Contact us online or at (619) 552-2609.