Lying in SEC filings is always a bad idea, Rubin said. One CCO who wore many hats at an advisory firm was found by the SEC to have lied and overexaggerated the firm’s assets on its Form ADV over many years to qualify the business for SEC investment advisor registration. At first, the RIA officer said the firm would qualify for SEC registration in four months, then lied in a filing that said the firm had $25 million in assets under management (AUM) and later falsely stated that the RIA had $100 million in AUM.
The SEC barred the CCO from the industry for one year and ordered him to pay a civil money penalty of $20,000, Eversheds Sutherland said.
Performance was another hotbed of CCO infractions in 2018, the law firm said. One 80 percent owner of an RIA who also wore the firm’s CCO hat was charged in April 2018 because his firm had advertised performance without disclosing that the returns were hypothetical, back-tested performance results.
“In other words, the firm went forward and backward in time to paint a rosier picture of the model’s performance,” Eversheds Sutherland said.
The SEC permanently barred the CCO and assessed a $75,000 penalty against him. Specifically, the agency found the RIA officer failed to adopt and implement policies and procedures reasonably designed to prevent such violations. His failures caused the firm to make “willful, fraudulent statements in advertisements, written materials, presentations, seminars, websites, radio shows and weekly updates delivered to clients regarding the firm’s hypothetical algorithmic trading activity,” the SEC said.
“Chief compliance officers may be held liable for failing to implement appropriate policies and procedures in many different areas, including in connection with performance statements,” Rubin warned.