I remember the SFX case because the CCO was charged for compliance failures. Now the auditors of SFX have been been charged for their failures.
SFX Financial Advisory Management Enterprises is wholly-owned by Live Nation Entertainment and specializes in providing advisory and financial management services to current and former professional athletes. The SEC charged SFX’s former president Brian J. Ourand with misusing his control over client accounts to steal approximately $670,000 over a five-years. The SEC charged the CCO for failing to supervise Ourand, violating the custody rule and making false Form ADV filings.
Continuing to pursue the failure, the SEC went after the SFX auditors. The SEC’s order finds that Santos, Postal & Co. P.C. and Joseph A. Scolaro conducted deficient surprise custody examinations of SFX Financial Advisory Management Enterprises.
In one instance the SEC charged the audit firm for stating that it complied with certain procedures to verify client assets when it did do the verification. In another instance the audit firm stated that client assets were held with a qualified custodian when in fact they were not.
The SEC imposed the custody rule and the surprise exam for adviser-controlled accounts specifically to prevent the kind of fraud that occurred at SFX.
Sources:
