MENU Close
Close
  • Home
  • Services
  • Attorneys
  • Resources
  • News & Events
  • About Us
  • Contact Us
  • Join our Team
Search
Back
    Quick Links:
    Join Webinar
    Read News
    Our Location
    A
    Alternative Dispute ResolutionAntitrust & Trade RegulationAppellate Practice
    B
    Banking & Financial ServicesBankruptcy, Creditors’ Rights, and Financial RestructuringBeer LawBusiness Law
    C
    Cannabis LawConstruction LawCriminal Defense
    E
    Economic Development LawElder Care & Special Needs LawElectronic Discovery ("E-Discovery")Environmental LawEstate Planning and Administration & Wealth PreservationExecutive Compensation, Employment, ERISA, and Employee Benefits
    F
    Food, Beverage & HospitalityFranchise Law
    H
    Health Care & Life SciencesHealth Care ProvidersHigher EducationHospitals and Health Networks
    I
    ImmigrationInsurance CoverageIntellectual PropertyIntellectual Property Litigation, Arbitration, and Dispute ResolutionIntellectual Property Portfolio Strategy, Management & LicensingInternational BusinessInternet Law
    L
    Labor & EmploymentLiquor Law, Licensing, Manufacturing, and DistributionLitigation
    M
    Media LawMergers & AcquisitionsMunicipal Law
    N
    Non-Profit Law
    P
    Patent Preparation and ProsecutionPharmaceutical / Medical Devices / Pharma ServicesProducts and Consumer Liability DefenseProfessional LiabilityPublic Utilities
    R
    Real Estate, Finance, and Land Use
    S
    SecuritiesSolar Energy
    T
    TaxationTelecommunicationsTrademark & Copyright Protection & Enforcement
    V
    Venture Tech & Emerging Growth Companies
    W
    White Collar Investigations & DefenseWorkers’ Compensation
    • New Jersey
    • New York
    • Pennsylvania
    • Blogs
    • Articles
    • Podcasts
    • COVID-19 Resources
    • News
    • Events
    • Webinars
    • About Us
    • Delivering Value
    • Diversity & Inclusion
    • Meritas

    New Jersey

    400 Crossing Boulevard
    8th Floor
    Bridgewater, NJ 08807
    Phone:(908) 722-0700
    Fax:(908) 722-0755

    28 Valley Road
    Suite 1
    Montclair, NJ 07042

    New York

    7 Times Square
    21st Floor
    New York City, NY 10036
    Phone:(212) 808-0700
    Fax:(212) 808-0844

    Pennsylvania

    515 West Hamilton Street
    Suite 502
    Allentown, PA 18101
    Phone:(610) 391-1800
    Fax:(610) 391-1805

    • What sets us apart
    • Attorneys
    • Other Professionals
    • Professional Development
    • Non-Discrimination Policy

    Categories

    Anti-Trust/Trade Regulations Banking/Financial Services Business Operations Choice of Entity Compliance Corporate Finance/Securities Corporate Governance Economic Development Law Entity Formation Franchise Law General Liquor Law Mergers & Acquisitions Public Utilities Real Estate Tax
    Blogs > Biz Law Blog > Non-Compliant Compliance: SEC Sanctions Chief...
    Of Counsel
    Peter D. Hutcheon
    Visit Profile

    Non-Compliant Compliance: SEC Sanctions Chief Compliance Officer

    Non-Compliant Compliance: SEC Sanctions Chief Compliance Officer

    On Thursday, June 30, 2022, the U.S. Securities and Exchange Commission (“SEC”) instituted Administrative and Cease-And-Desist Proceedings against a Georgia registered investment adviser, Hamilton Investment Counsel (“HIC”), and its principal and Chief Compliance Officer, Jeffrey Kirkpatrick (“JK”) for failure properly to supervise and to ensure compliance by a HIC investment adviser representative (“IAR”) regarding his outside business activities (“OBA”). Responding to settlement offers by HIC and JK, the SEC issued an Order on June 30, 2022, reflecting the Commission’s Proceedings. The Order notes that HIC, organized in 2016 and registered with the Commission since March 9, 2018, managed assets of some $196 million. JK was also a registered representative of an SEC-registered broker/dealer (“B/D”) used by HIC in its advisory business.

    JK was the principal of HIC and, notionally, its owner.  He also served, as noted, as the Chief Compliance Officer for HIC, and as such, was responsible (per the Order) “for administering HIC’s compliance program and … for implementing the firm’s compliance policies and procedures.” In accordance with that program, IARs were required to disclose OBAs to HIC and to comply with the B/D’s compliance policies. By February 2020, the IAR to JK that he had OBA, but as stated in the Order, JK did not require the IAR to complete and submit the HIC form for reporting an OBA, nor did JK undertake “sufficient review to determine whether the OBA presented any conflicts of interest,” as required by HIC’s compliance manual. JK received additional information in June 2020 about the IAR’s OBA. Then in August 2020, the B/D “flagged” certain transactions “conducted by the IAR involving transfers of HIC client assets to the IAR’s OBA,” but JK did not investigate the legitimacy of the transactions. In September 2020, JK learned that the IAR was avoiding the B/D’s compliance program, but JK again elected not to review the IAR’s actions. In November 2020, JK discovered that the IAR was using his office at HIC for a second OBA but did not check to see that this second OBA had been accurately reported to HIC or that the IAR complied with the B/D’s compliance requirements. When JK finally did report information about the IAR’s OBAs to the B/D in June 2021, the B/D ended its relationship with HIC.

    The Commission found that HIC willfully violated the Investment Advisers Act of 1940, as amended, and SEC rules thereunder, and that JK had aided and abetted HIC and caused HIC to engage in those violations. HIC and JK were ordered to cease and desist from violating the securities laws and to pay civil money penalties: $150,000 in the case of HIC and $15,000 in the case of JK. Additionally, JK was barred from serving in any supervisory or compliance capacity with any broker/dealer, investment adviser, municipal securities dealer or advisor, transfer agent, or nationally recognized statistical rating organization, with a right to apply to end the bar after five years. On April 26, 2022, HIC terminated its registration as an investment adviser.

    The Commission adopted rules effective Feb. 5, 2004, requiring investment companies and investment advisers (such as HIC), to have “policies and procedures reasonably designed to prevent violation of the federal securities laws … and designate a chief compliance officer (like JK) to be responsible for administering the policies and procedures,” according to the SEC Adopting Release of Dec. 17, 2003. That Release goes on to note that in 2003, “the Commission and state securities authorities … discovered unlawful conduct involving several fund advisers, broker-dealers, and other service providers. … We are taking … [these] regulatory actions to curb the abusive practices recently discovered and to prevent their recurrence.” The Chief Compliance Officer of an investment adviser or other capital market participant is to some extent the functional cognate of quality control personnel employed by manufacturing companies; if quality control personnel do not carry out their tasks, both the quality of the products manufactured, and the safety of customers are at risk. When a Chief Compliance Officer does not perform his or her assigned tasks, the investment adviser is at risk of delivering compromised advice, harming advisory clients, and/or allowing fraudulent activity to occur and continue.

    It appears from the Order that JK clearly neglected his duties, perhaps from distraction, overwork, or even boredom. In any event, HIC clients were both imperiled and ill-served, and so was the B/D, thus requiring the five-year bar imposed by the Commission on JK. I have previously written about derelict compliance officers in my Dec. 15, 2020, Blog “When the CCO Is Not Compliant: Failure to Have Independent Testing of Broker/Dealer AML.” The importance of compliance officers cannot be overstated. It may be appropriate to consider in this connection the concerns expressed by Plato in his “Republic,” where Plato has Socrates (in his Dialogue) propose a guardian class to protect society against the risks of imperfection. Certainly, the SEC seeks to protect the capital markets, including investors, from abuses carried out by those whom investors have engaged to give them wise advice.

    If you have any questions concerning this post or any related matter, please feel free to contact me at pdhutcheon@norris-law.com.

    Of Counsel
    Peter D. Hutcheon
    Visit Profile

    Related Posts

    When the “Back Door” is Closed: Muni Bond Underwriter Sanctioned “Oh, Baloney!” SEC Sues Father, Son, and Friend for Manipulating the Stock of a New Jersey Deli Who Pays and How Much? Consolidated Audit Trail Funding

    Share

    Tags

    #investors #SEC

    Similar Posts

    May 1, 2023
    Underwater Investment: SEC Sues Hawaiian Semisubmersible Company for Offering Fraud
    Underwater Investment: SEC Sues Hawaiian Semisubmersible Company for Offering Fraud
    March 27, 2023
    “Oh, Baloney!” SEC Sues Father, Son, and Friend for Manipulating the Stock of a New Jersey Deli
    “Oh, Baloney!” SEC Sues Father, Son, and Friend for Manipulating the Stock of a New Jersey Deli
    February 21, 2023
    The Fourth Crow: SEC Sues Nonexistent Fund and Unidentified Agents
    The Fourth Crow: SEC Sues Nonexistent Fund and Unidentified Agents

    Helpful links

    • About Us
    • News
    • Services
    • Blogs
    • Attorneys
    • Articles
    • (COVID-19)
    • Events
    • Join our Team
    Connect

    Connect with Us

    • LinkedIn
    • Facebook
    • Twitter
    • Instagram
    • Youtube

    Join our growing team

    We are looking for quality attorneys to help us do more for our clients. At Norris McLaughlin, each attorney has the same opportunity to succeed whether you’re at the beginning of a career or pinnacle of the profession.

    Learn More

    Subscribe to our content

    Receive timely legal information delivered to your inbox

    This field is for validation purposes and should be left unchanged.
    © , Norris McLaughlin, P.A., All Rights Reserved. Attorney Advertising.
    VIEW OUR DISCLAIMER,  TERMS OF USE,  AND PRIVACY POLICY

    We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume you consent to our cookie policy. Learn more