The Securities and Exchange Commission today charged three investment advisor firms for failing to set up compliance procedures to prevent securities law violations, and said two of the firms ignored SEC examiners' previous warnings.
The firms charged with compliance failures in separate cases are: Utah-based OMNI Investment Advisors Inc., Minneapolis-based Feltl & Company Inc. and Troy, Mich.-based Asset Advisors LLC. All three firms will pay financial penalties and institute a series of corrective measures to settle the SEC's charges.
The SEC is also charging OMNI's owner Gary R. Beynon, who served as the firm's chief compliance officer -- despite living in Brazil -- with performing virtually no compliance responsibilities.
Feltl & Company, Asset Advisors, OMNI Investment Advisors and Beynon did not admit or deny the allegations. In addition to the penalties, all parties consented to cease-and-desist orders and agreed to be censured.
Under the SEC's Compliance Rule, registered investment advisors must adopt and implement written policies and procedures to prevent, detect, and correct securities law violations.
The SEC claims that OMNI and Beynon failed to adopt and implement written compliance policies and procedures after SEC examiners informed OMNI of its deficiencies. Between Sept. 2008 and Aug. 2011, the SEC alleges that OMNI had no compliance program in place and that its advisory representatives were completely unsupervised. Beynon assumed the chief compliance officer responsibilities in November 2010 while living abroad.
In addition, the SEC claims that OMNI also 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 SEC, the commission said.
Under its SEC settlement, Beynon will pay a $50,000 penalty and he also agreed to be permanently barred from acting within the securities industry 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 Sept. 2008 and Aug. 2011.
The SEC claims that Feltl & Company failed to adopt and implement written compliance policies and procedures or adopt a code of ethics, and collect the required securities disclosure reports from its staff. As a result, the SEC claims that 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 its SEC settlement, Feltl will pay a $50,000 penalty and return more than $142,000 to certain advisory clients. It will also hire an independent consultant to review its compliance operations annually for two years, provide a copy of the SEC's order to all past, present and future clients, and post a summary of the order on its company website.
The SEC also claims that Asset Advisors 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, the SEC said. 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 its SEC settlement, Asset Advisors will pay a $20,000 penalty, cease operations, de-register with the SEC, and -- with clients' consent -- move its advisory accounts to a firm with an established compliance program. An investigation of Asset Management's compliance program initiative is continuing, SEC officials said.