Dual Registrant Fined for Misstating Underwriting Expenses

A broker-dealer/investment adviser ("BD/IA") settled charges with the SEC for violating recordkeeping requirements in connection with its recording of expenses incurred from the broker-dealer's underwriting activities.

In an Order, the SEC said that the BD/IA failed to implement procedures to review its estimations of indirect expenses of underwritings. The SEC stated that the BD/IA recorded the expenses without having a basis for its calculations or taking steps to verify that its calculations were reasonable. The SEC found that the BD/IA used a fixed percentage to calculate its expenses for each deal's underwriting fee, which were then "divided into expense categories by fixed percentages and recorded in its ledger."

As a result, the SEC concluded that the BD/IA violated Exchange Act Section 17(a) ("Records and Reports") and Exchange Act Rule 17a-3 ("Records to be made by certain exchange members, brokers and dealers") thereunder.

To settle the charges, the BD/IA agreed to (i) cease and desist from further regulatory violations, (ii) a censure and (iii) pay a money penalty of $2.9 million.