Investment Adviser and Principals Sanctioned for Compliance Failures

In a matter underscoring how important it is for investment advisers to dedicate sufficient resources and attention to their compliance program, the Securities and Exchange Commission (“SEC”) has sanctioned a firm for multiple compliance failures. On June 23, 2015 the SEC instituted cease-and-desist proceedings against Pekin Singer Strauss, a registered investment advisor firm boasting approximately $1.07 billion in AUM which primarily serves high-net-worth clients.

Among the violations cited, the order states that Pekin Singer failed to conduct timely annual compliance program reviews in 2009 and 2010 and failed to implement and enforce provisions of its policies and procedures and code of ethics during this same period. The firm has been ordered to pay a civil money penalty in the amount of $150,000.

The order further states that R. Strauss, Pekin Singer’s former president, dedicated insufficient resources to compliance, which contributed substantially to Pekin Singer’s compliance failures, and knew the new CCO had limited prior experience and training in compliance prior to becoming CCO. He also failed to provide the CCO with sufficient guidance regarding his duties and responsibilities during his transition into the CCO role or staff to assist him with compliance. R. Strauss has been suspended for twelve months from acting in any compliance or supervisory capacity and was ordered to pay a fine in the amount of $45,000. However, he continues to serves as a senior advisor at Pekin Singer and is a member of Pekin Singer’s Board of Directors.

According to the order, prior to being named to the CCO position, his roles included backup trader, backup trade reconciliation, research analyst, and portfolio manager for a handful of accounts. He had limited experience and training in compliance prior to being named CCO in 2007. In addition to his existing responsibilities the CCO was also named Pekin Singer’s CFO in 2009. “Between his research and other responsibilities, the CCO was only able to devote between 10% and 20% of his time on compliance matters,” the SEC states.

Despite his limited experience the CCO recognized that Pekin Singer’s compliance program needed further improvement but he lacked the knowledge and resources to adopt and implement an effective compliance program or how to conduct a comprehensive and effective annual compliance program review. While the CCO requested additional resources to assist with the compliance program, R. Strauss felt any compliance issues would simply be dealt with if an exam occurred and asked that the CCO “prioritize his investment research responsibilities over compliance.” The SEC did not take action against the CCO, “likely because he had pleaded for more resources,”

A. Strauss, Pekin Singer’s co‐CEO, who was censured by the SEC along with W. Pekin and ordered to pay $45,000 each in fines for their involvement, was reported to say in a statement that “Our clients were not adversely affected financially by these compliance deficiencies. Furthermore, since 2011, the firm has significantly enhanced its compliance function and completed timely annual compliance reviews.” As part of Pekin Singer’s remediation efforts the firm retained a compliance consultant and legal counsel in 2011, prior to the SEC’s routine exam, and hired a compliance officer in 2012.

Parker MacIntyre provides legal and compliance services to investment advisers, broker dealers, registered representatives, hedge funds, and issuers of securities, among others. Our regulatory practice group assists financial service providers with complex issues that arise in the course of their business, including complying with federal and state laws and rules. Please visit our website for more information.

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