The Securities and Exchange Commission (SEC) charged Modern Portfolio Management, Equitas Capital Advisers and Equitas Partners of continually ignoring warnings about problems with their compliance programs.
All three firms were unavailable for comment at press time.
“The Compliance Program Initiative is designed to address repeated compliance failures that may lead to bigger problems,” said Andrew Ceresney, co-director of the SEC’s Division of Enforcement, in a statement.
“That risk materialized with these firms, whose compliance programs were not adequate to prevent misleading statements in marketing materials or inadvertent overbilling of clients.”
The agency’s Compliance Program Initiative – which targets firms previously warned by SEC examiners about compliance deficiencies – brought the case upon the advisers, who the SEC said could have prevented their eventual securities law violations by heeding past SEC warnings.
Under what is known as the “Compliance Rule” of the Investment Advisers Act, investment advisers are required to adopt and implement written policies and procedures that are reasonably designed to prevent securities law violations.
The rule requires advisers to review their policies and procedures at least once a year for adequacy and effectiveness of implementation. Advisers also must designate a chief compliance officer responsible for administering the policies and procedures.
Modern Portfolio Management (MPM) and its directors failed to complete annual compliance reviews in 2006 and 2009 and made misleading statements on its website and investor brochure, according to the SEC. Examiners claim MPM’s website misleadingly told visitors the firm had more than $600 million in assets, however, on its Form ADV filing to the SEC it reported the AUM was $359 million or less.
MPM and its directors agreed to be censured and pay a total of $175,000 in penalties. The directors must complete 30 hours of compliance training, and MPM has agreed to designate someone other than the sanctioned directors to be its chief compliance officer.
According to the SEC’s orders against New Orleans-based Equitas Capital Advisers and Equitas Partners the firms made false and misleading disclosures about historical performance, compensation, and conflicts of interest, and they inadvertently, and repeatedly, overcharged and undercharged their clients.
Many of the alleged Equitas violations occurred despite warning from examiners in 2005, 2008 and 2011, according to the SEC.
Equitas Capital Advisers has reimbursed all overcharged clients, and Equitas Capital Advisers agreed to pay a total of $225,000 in additional penalties. The two firms agreed to censures and hired independent compliance consultants and additionally agreed to give notice of the SEC enforcement actions to LPs.