Inadequate Compliance Programs Could Lead to Enforcement Actions & Penalties

In a recent press release, the SEC announced three enforcement actions against firms for failing to meet their obligations under Rule 206(4)-7 of the Advisers Act, commonly referred to as the “Compliance Program Rule.” Rule 206(4)-7 requires firms to (i) adopt and implement written policies and procedures that are reasonably designed to prevent securities law violations; (ii) annually review the adequacy and effectiveness of compliance policies and procedures; and (iii) designate a chief compliance officer to administer the firm’s compliance program. According to Robert Kaplan, Co-Chief of the Asset Management Unit of the Division of Enforcement, “[t]he failure to adopt and maintain adequate compliance policies and procedures is a significant violation of the federal securities laws.”

The SEC charged OMNI Investment Advisors Inc. and its CCO for failing to adopt and implement written compliance policies and procedures, and leaving its advisory representatives completely unsupervised. The firm’s CCO was barred from a compliance and supervisory position in the industry and the firm subsequently deregistered. The SEC found that Asset Advisors LLC violated the Compliance Program Rule by failing to develop a compliance manual that was sufficiently customized to the firm’s advisory business and named a CCO who failed to adequately prepare himself for the role. In this instance, the firm was required to cease operations and dissolve.  Finally, Feltl & Company Inc. was assessed approximately $200,000 in penalties and disgorged funds for failing to devote enough resources to the firm’s compliance program. Feltl was permitted to continue operations, but must 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.

The enforcement actions come as part of the Enforcement Division’s new compliance program initiative, which is intended to work closely with SEC examiners to bring enforcement actions against firms that fail to address and remediate compliance deficiencies. This is the latest development in the SEC’s renewed focus on identifying and penalizing investment advisers that fail to take compliance obligations seriously. For additional information, or for assistance in developing or enhancing your firm’s compliance program, please contact Zac Rosenberg, Compliance Consultant by email at zachary.rosenberg@corecls.com or by phone at (619) 278-0020.