On November 17, 2010, the SEC charged investment adviser Buckingham Capital Management Inc. (“BCM”), its broker-dealer parent company, The Buckingham Research Group Inc. (“BRG”), and Lloyd Karp, the firms’ chief compliance officer, with failing to have adequate policies and procedures to prevent misuse of nonpublic information. BCM was also charged with supplementing and altering its records prior to turning them over to SEC examination staff.
The SEC found that BCM and BRG failed to establish, maintain, and enforce written policies and procedures reasonably designed to prevent misuse of material, nonpublic information, including forthcoming BRG research reports. According to the SEC’s order, BRG’s written policy required analysts to certify confidentiality of information whenever a material research event occurred. However, BRG only required a certification in instances where a BCM portfolio traded in the same direction and in many instances, analyst certifications were lacking, incomplete or dated long after the research event had occurred. With respect to BCM, the SEC found that when BCM began preparing for an SEC examination in 2006, the firm discovered that it was missing over 100 pre-approval trade forms. According to the SEC, BCM created the missing pre-approval forms and provided the forms to the examination staff of the SEC without disclosing what had been done. In addition, BCM replaced incomplete compliance logs and failed to follow its written policy regarding nonpublic information. As a result, BRG agreed to pay a $50,000 penalty, BCM agreed to pay a $75,000 penalty and Mr. Karp agreed to pay a $35,000 penalty.