The SEC recently sanctioned three investment adviser firms under its “Compliance Program Initiative” for repeatedly ignoring problems with their respective compliance programs. Under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), firms are required to adopt and implement policies and procedures that are reasonably designed to prevent violations of applicable securities laws. The policies and procedures must be reviewed at least annually for effectiveness and a chief compliance officer must be responsible for their administration. The Compliance Program Initiative was designed by the SEC to address repeated instances of compliance failures that, in its view, could lead to larger compliance problems in the future. Specifically, under the Compliance Program Initiative, the SEC targets firms that have been previously notified of compliance problems, but have not effectively addressed those warnings.
The SEC sanctioned the three firms for failure to correct ongoing compliance obligations including: failure to complete annual compliance reviews, inclusion of misleading statements on material materials (i.e., misstating the firm’s assets under management on its websites, misleading disclosures about historical performance, compensation and conflicts of interest), over- and under-billing clients and failure to include compliance deficiencies to clients on certain due diligence questionnaires.
The firms charged agreed to settlements which include (among other things) payment of monetary penalties, hiring new compliance officers and compliance consultants to assist them with their compliance programs, undergoing compliance training and reimbursement payments to over-billed clients.