Firm Charged With Improperly Retaining Fees From Clients

managing-coi

On September 2, 2015, a Philadelphia- based investment advisory firm was charged by the Securities and Exchange Commission (“SEC”) with improperly retaining fees from collateralized debt obligation (“CDO”) clients. From 2009 to 2012, Taberna Capital Management (“Taberna”) retained “exchange fees” in contravention of the CDO’s governing documents and without disclosures of such activity, along with applicable conflicts to the CDO clients.

“CDO managers have an obligation to act in the best interests of their CDO clients and communicate fairly with them.  Taberna secretly diverted funds owed to CDO clients, and concealed that diversion and the conflicts it created,” said Michael J. Osnato Jr., Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit.

According to the SEC Order, Taberna has agreed to pay over $21 million to settle these charges and the firm must cease its advisory activity for the next three years. Additionally, Taberna’s Managing Director and Chief Operating Officer were fined and barred from the industry for specific time periods.

Chief Compliance Officers should perform conflicts of interest reviews at least annually, which will not only identify new conflicts, but will help to ensure all conflicts are eliminated or mitigated, and disclosed as necessary.

For information on how CCLS can assist firms with conflict reviews, along with more information on this enforcement action and other related subjects, please contact us at info@corecls.com or (619) 278-0020.