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Investment firms settle with SEC for ignoring compliance programs

The firms charged have agreed to settlements in which they will pay financial penalties and hire compliance consultants

Three investment advisory firms agreed to settle civil charges after the Securities and Exchange Commission (SEC) sanctioned them for repeatedly ignoring problems with their compliance programs. 

The firms charged – Modern Portfolio Management Inc. (MPM), Equitas Capital Advisers LLC, and Equitas Partners LLC – have agreed to settlements in which they will pay financial penalties and hire compliance consultants, SEC officials said.

The SEC’s sanctions against the three firms are based on the agency’s Compliance Program Initiative, which targets firms that have been previously warned by SEC examiners about compliance deficiencies but failed to effectively act upon those warnings. 

The compliance initiative is designed to address repeated compliance failures that may lead to bigger problems, according to Andrew J. Ceresney, co-director of the SEC’s Division of Enforcement.  

“That risk materialized with these firms, whose compliance programs were not adequate to prevent misleading statements in marketing materials or inadvertent overbilling of clients,” Ceresney said in a statement. “Firms must not only have policies and procedures in place, but also need to properly implement those policies and procedures.”

The three firms failed to correct ongoing compliance violations, and adopt and implement written compliance and policy procedures, according to the SEC.

The SEC’s order against MPM and its owners G. Thomas Damasco II and Bryan Ohm finds that they failed to correct ongoing compliance violations at the firm despite prior warnings from SEC examiners. Specifically, they failed to complete annual compliance reviews in 2006 and 2009 and made misleading statements on MPM’s website and investor brochure, SEC officials said. 

According to the SEC’s orders against New Orleans-based Equitas Capital Advisers and Equitas Partners as well as owner David S. Thomas, Jr., chief compliance officer Susan Christina, and former owner and chief compliance officer Stephen Derby Gisclair, they failed to adopt and implement written compliance policies and procedures and conduct annual compliance reviews to satisfy the SEC’s Compliance Rule.

The SEC has been tackling issues of corruption and compliance in companies large and small. The SEC Enforcement Division’s Asset Management Unit has worked with examiners to bring several cases since the initiative began two years ago. The program was initiated as one of several specialized areas created in the wake of the financial crisis and the Bernard Madoff Ponzi scheme. 

For other SEC stories, check out InsideCounsel’s coverage below:

Diebold Inc. to pay $48 million for FCPA violations

Regulatory: Why the SEC’s proposed pay-ratio rule will increase compliance costs

SEC displaying aggressive new stance designed to scare off violators

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Erin E. Harrison

Erin E. Harrison is the Editor in Chief of InsideCounsel magazine. Harrison’s professional background includes extensive expertise in both print and online media, highlighted by...

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