Investment Adviser Settles SEC Charges for Suitability Review Failures

An investment adviser settled SEC charges for failing to conduct suitability reviews in fee-based advisory accounts, contrary to its Form ADV filing.

In its Order, the SEC found that the adviser's failure to conduct adequate suitability reviews resulted in the adviser collecting management fees in hundreds of advisory accounts. The SEC said that the accounts included many low-volume trading accounts where very little, if any, trading occurred. The SEC said that the adviser adopted a new review policy concerning account suitability after learning of suitability review deficiencies, but failed to effectively implement it.

Additionally, the SEC found that the adviser put clients into "riskless principal" fixed-income transactions relating to Real Estate Investment Trusts ("REITs") through its affiliated broker-dealer without prior consent from the clients. The SEC said that the clients were not made aware that the broker-dealer would be acting in a principal capacity with respect to the transactions, and the adviser had declared that it did not engage in principal transactions in its previous Form ADV filing. The SEC found that the adviser continued to engage in improper trading practices and collected unwarranted transaction fees after learning of the issue.

The SEC determined that the adviser violated IAA Section 206(4) ("Prohibited transactions by investment advisers") and IAA Rule 206(4)-7 ("Compliance procedures and practices"). To settle the charges, the adviser agreed to (i) cease and desist, (ii) a censure, (iii) a total civil monetary penalty of $711,628 and (iv) undertakings to improve its supervision and compliance policies.