Books and Records

Investment Adviser Charged with Misleading SEC Regarding Examination

November 12, 2015 | Steve Parker

In August of this year the Securities and Exchange Commission (“SEC”) settled an administrative proceeding that related to statements an investment adviser made during the SEC’s on-site examination. The adviser at issue, Parallax Capital Partners, LLC, is a registered investment adviser that focuses primarily on mortgage-backed bonds and other similar fixed income securities. Parallax also advises a private fund in addition to providing advisory services to individuals and other entities. During an examination of Parallax that the SEC conducted in April 2011, the firm’s Chief Compliance Officer represented to the examination staff that he had performed and documented the annual compliance review required by Adviser’s Act Rule 206(4)-7 for the year 2010. The CCO further represented that the review and documentation had been conducted in February 2011, and provided the examination staff with a memorandum purportedly documenting the compliance review for 2010 that stated: “This memo documents that I have performed the review and reported significant compliance events and material compliance matters.”

The SEC examination staff was able to determine, by a review of the metadata attached to the compliance memorandum, that it had not been drafted in February 2011 as the CCO had represented, but instead that it had been created and completed in April 2011, just three days prior to the onsite examination and after Parallax received notice of the impending examination.
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State Investment Adviser and Securities Regulators Hold Annual Conference

October 6, 2015 | Steve Parker

Parker MacIntyre attorneys Steve Parker and Bryan Gort attended the 2015 annual conference of the North American Securities Administrators Association (NASAA) held last week in San Juan, Puerto Rico. As usual, the conference provided valuable guidance and updated information on areas of importance to state-registered investment advisers, as well as federal notice filed broker-dealers and SEC registered investment advisers.

Of interest to state-registered investment advisers are proposed amendments to Part 1B of Form ADV that would attempt to capture an RIA’s use of social media and information on the use of third-party compliance professionals.

NASAA also presented the findings of its 2015 coordinated investment adviser examination review, compiled from the results of over 1100 investment adviser examinations. Once again, books and records deficiencies was the leading category, with 78% of all examined entities having deficiencies in that area. Within that category the failure to maintain adequate client suitability data was the leading deficiency, accounting for 10% of the deficiencies noted within the books and record category.
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States Report RIA Enforcement Cases Doubled in 2011

August 27, 2012 | Steve Parker

The North American Securities Administrators Association (NASAA) released preliminary numbers this month showing that the number of enforcement cases brought by state regulators doubled during 2011. During that year, states brought about 400 cases compared to 208 cases brought during 2010. This increase is due in large part to an expansion of state examinations as a result of the Dodd-Frank financial reform law. Dodd-Frank gave the states examination authority for some approximately 2,400 “mid-sized” advisers (firms with less than $100 million in assets under management) which are required to switch from SEC to state registration.

As a result of the switch, some former SEC firms that haven’t been examined in many years, if ever, by the SEC now find themselves subject to a state examination and can also look forward to being examined by the state more frequently.
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