RIA Compliance Blog
In September 2023, the U.S. Securities and Exchange Commission (“SEC”) filed a complaint against Lufkin Advisors, LLC, a now de-registered Registered Investment Adviser, and its President, Chauncey Forbush Lufkin, III (collectively, “Defendants”) in the U.S. District Court for the Southern District of Florida.
The SEC first alleged an ongoing fraudulent course of conduct for multiple years. To support this claim, they alleged that the Defendants
- Failed to manage assets entrusted to them,
- Lost control–due to a lost or forgotten password–of cryptocurrency assets valuing an estimated $10 million for at least a year without notification to the client(s),
- Made investments with Mr. Lufkin’s spouse’s company without the appropriate conflict of interest disclosures,
- Failed to account for withdrawals from private funds, and
- Failed to monitor the value of investments in private funds.
In addition to these claims, the SEC alleged that Defendants failed to adhere to rules regarding custody of assets; accuracy and timeliness of reports, including Form ADV, filed with the SEC; records maintenance; and production of said records to the SEC. The SEC also claimed that Defendants failed to comply with compliance rules, including a failure to create, adopt, or implement written policies and procedures and a failure to conduct an annual review of any policies and procedures. According to the SEC, this failure to produce records obstructed their efforts to conduct the examination of Lufkin Advisors.
These allegations stem from an SEC examination of the firm that began in February 2023. After the SEC initially contacted Defendants and requested documents, the SEC did not receive any response by the response deadline. Mr. Lufkin directed the SEC to an accounting firm, which produced an organizational chart after the response deadline. Thereafter, the SEC attempted to reach the accounting firm and Mr. Lufkin multiple times with no response, which resulted in the SEC issuing a Failure to Produce Letter to Mr. Lufkin and the accounting firm. On that same day, the accounting firm produced a small set of documents to the SEC. Approximately two weeks later, the SEC spoke with the accounting firm and Lufkin Advisors, but Mr. Lufkin did not participate. Following this meeting, the accounting firm produced one more document. Subsequently, the SEC did not receive any additional materials and was unable to reach Mr. Lufkin or the accounting firm from May 4, 2023, to August 2023.
Following the filing of the civil complaint in September 2023, a final judgment was entered by consent in the Southern District of Florida against Defendants on June 25, 2024. On June 26, 2024, the SEC issued an order imposing sanctions against Defendants. Defendants were ordered to deregister the firm; banned from association with, among others, any broker, dealer, or investment adviser; and ordered to pay $425,000 in civil penalties.
Registered investment advisers should take note of this action not only when adopting and implementing compliance policies and procedures and submitting filings to regulators, but also when responding to an SEC examination.
Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds, and issuers of securities, among others. Our Investment Adviser 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 Investment Adviser Practice Group page for more information.