The sad case of a compliance officer who faked compliance reviews and the company president who went along.
American Portfolio Advisors was subject to an examination by the Securities and Exchange Commission. SEC staff asked for copies of the most recent compliance review pursuant to Rule 206(4)-7.
The rule doesn’t require a written documentation of the compliance review. At least not in 2021 when the exam was taking place. The Private Funds Rule tried filling the hole that the review is not required to be documented under 206(4)-7. But that whole suite of proposed rules was thrown out.
Regardless, the American Portfolio Advisors policies and procedures required a written annual compliance review. It further required that the firm’s CCO meet with the President to discuss the compliance review.
You can guess what happens next. (Or why would be talking about this?)
The Chief Compliance Officer, Colin Moors, chose to create new documents purporting to be compliance reviews for the three prior years. He signed and backdated the reviews. Mr. Moors brought them to the firm’s president, Gary Gordon. Mr. Gordon signed and backdated the reviews.
They each get censured and subject to fines.
There was an underlying problem with the firm. It had been overbilling its clients. Presumably, an annual compliance review would have spotted the problem.
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