Firm Charged $15 Million for Failure to Prevent and Detect Fraud
SEC RELEASES
Introduction
After four investment advisers and registered representatives (hereby, financial advisors) were charged with stealing millions of dollars, their firm was charged a $15 million penalty for failing to supervise and prevent these actions.
We have discussed previously the importance of compliance testing along with a strong and proactive compliance program. These charges from the SEC are an example of the potential for heavy costs associated with compliance failures.
What Happened?
According to the SEC:
- Financial advisors at the firm utilized unauthorized Automated Clearing House payments to pay their credit card bills and other illicit purposes, along with cash wire transfers from customer and client accounts.
- The firm implemented fraud detection software in 2015 with the intention of catching such behavior, but the implemented system was not designed for such a purpose.
- No compliance testing occurred during this time period that could have detected the fraud occurring.
- The SEC found that the failure to implement and test the compliance policies and procedures was a significant failure to meet the monitoring and supervision requirements.
- Along with the $15 million fine, the firm must engage a compliance consultant that will also provide confidential reports the SEC.
Vigilant’s Conclusion
This recent charge emphasizes how important on-going compliance testing is for the success of your firm. When employees conduct illegal activity, the SEC will investigate how such actions were not flagged by those tasked with supervision. In the event of illegal activity, it is likely that the firm will also face penalties.
SEC charges can hurt one’s business image and the confidence of their clients.
With 2025 around the corner, reach out to us to discuss how you can better protect your business with efficient and effective compliance testing.