“Our in-house policies state that our employees are to report their investment accounts to the chief compliance officer,” Mallouk said. “One hundred percent of my family’s accounts are invested in the same exact positions as our clients. Some of my accounts were not reviewed, resulting in this code of ethics and reporting issue, which resulted in a $50,000 fine.”
Mallouk said the firm decided to settle with the SEC “so that we could move on and focus 100 percent of our attention on our clients. A big takeaway from all this is to not only follow rules and regulations, but to also follow your own written policies.”
The experience, while “horrible,” did not slow growth at the firm, which Mallouk has predicted will hit $40 billion in assets.
“As RIAs get larger, they can expect to have similar experiences, and let me tell you, the experience is horrible. It’s time consuming, expensive and distracting,” he added. “Through it all, I didn’t allow it to let me miss a kid’s event or hinder Creative’s dedication to its clients. It certainly didn’t hinder our growth either, as we hired more people and brought on more clients during this period than any other.”