Published on Mar 27th, 2025 |

SEC Charges Two (2) Officers and the Adviser for Misuse of Assets

SEC Releases

Introduction

The SEC announced charges earlier this month (March, 2025) against an RIA, and two of its Officers, for misuse of Fund and Company Assets.

Compliance programs must be reasonably designed to detect this behavior, and Officers who fail in their supervisory role can face SEC scrutiny when charges are filed.

What Happened?

What Happened?

According to the SEC:

  • From at least August 2021 through February 2024, the COO used approximately $223,000 in over 100 transactions for personal expenses including vacations and clothing.
  • The RIA failed to adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act arising from the COO’s misappropriation.
  • The supervising Managing Partner did not properly supervise the COO or identify the red flags indicating that violations were occurring including:
    • Significantly increased travel expenses in 2022.
    • Awareness that the COO had failed to pay personal income taxes.
    • Travel expenses that were directly impacting investment returns.
      • While the supervising Managing Partner did urge the COO to limit the travel expenses, there was a failure from the supervising Managing Partner to investigate why the travel expenses had increased and failed to take any further steps to ensure that the COO reduced the travel expenses.
  • After discovering approximately $18,000 in misappropriated funds, the Managing Partner and the RIA did not take any steps to impose additional controls or policies to limit the COO’s access to Fund assets.
  • The RIA will pay a $235,000 penalty.
  • The supervising Managing Partner will pay an $80,000 penalty and is suspended from acting in a supervisory capacity for 12 months.
  • The COO is barred from association with an Investment Adviser, Broker, Dealer, Municipal Securities Dealer, Municipal Advisor, Transfer Agent, or nationally recognized Statistical Rating Organization. The COO also faces a civil penalty of $200,000.

Vigilant's Conclusion

Vigilant’s Conclusion

Firms need to maintain written policies and procedures that are reasonably designed to detect violations of the Advisers Act.

It is essential that the policies identify red flag behaviors and have a procedure in place to investigate red flag behavior and reduce the likelihood of further violations.

Compliance programs that fail to maintain these standards can face SEC penalties, and Officers in a supervisory role may also face fines depending on the details.

Vigilant provides an initial gap analysis and tailored Compliance Services so Firms can feel confident that their policies and procedures can hold up under SEC scrutiny and are being followed internally by their team.

Schedule a call to learn more about how Vigilant can help.

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