Regulatory Update

No Backdating for Exams!

07.11.25.The SEC brought proceedings against the Chief Compliance Officer (“CCO”) of formerly registered investment adviser American Portfolios Advisors, Inc. (“APA”) for the production of backdated documents purportedly documenting APA’s annual review of its policies and procedures to Commission staff during a compliance examination, in violation of Section 204(a) of the Advisers Act, and Rule 204-2(a)(17)(ii). In May of 2021, Commission staff sent a request letter to APA, indicating it was conducting an examination of APA pursuant to Section 204 under the Advisers Act. The staff requested records documenting APA’s most recent annual compliance review pursuant to Rule 206(4)-7 and records documenting compliance testing performed during the examination period of January 2019 through March 2021. Although documentation of an adviser’s annual compliance review is not required under Rule 206(4)-7, APA’s policies and procedures required that a written annual compliance report be created and that the President and CCO meet to discuss the report. The CCO subsequently informed APA’s President that the SEC had commenced an examination of APA. Rather than responding to the request letter that APA did not have any records responsive to the staff’s request, the CCO created three documents which were styled as “Annual Compliance Calendars” and purported to memorialize contemporaneous annual compliance reviews for the years 2018, 2019, and 2020. These documents were in a checklist format listing compliance items to be completed, the frequency with which they should be completed, and a blank field to denote when the item had been completed, all filled in by the CCO as completed during the respective years. The CCO signed and backdated his signature on each of the three documents. He presented them to APA’s President, who also signed and backdated the documents. The CCO then provided the backdated documents to the SEC. The CCO voluntarily admitted in testimony that he created, signed, and backdated the calendars.The CCO was censured and fined $10,000.

Really, No Backdating!

07.15.25. The SEC brought proceedings against Suzanne Ballek, the CCO of a formerly registered investment adviser (“Adviser A”) for modifying records before providing them to the Commission staff during the staff’s examination beginning in September of 2022. The staff requested documents related to Adviser A’s pre-clearance trading policy applicable to certain supervised persons. The CCO produced these documents to the staff, which included pre-clearance trading forms related to a particular portfolio manager. Before providing these forms, however, the CCO modified the dates and/or filled in missing information, which in many cases had been filled out after the trades were completed and after any oral trade authorizations were provided. By doing so, the CCO created the appearance that certain forms were completed correctly on the date of the transactions. Where there had been no form completed for a trade, the CCO created a form and affixed the trader’s signature without the trader’s knowledge or authorization before providing them to the staff.

Adviser A was required under Section 204A of the Advisers Act and Rule 204A-1 to establish, maintain, and enforce a written code of ethics that required reporting by access persons of personal securities transactions and holdings. An “access person” under Rule 204A-1 includes supervised persons involved in making securities recommendations to clients. Adviser A’s Code of Ethics required that access persons report their securities transactions and holdings consistent with the requirements of Rule 204A-1. The Code of Ethics further required that access persons obtain the CCO’s approval prior to purchasing or selling securities in their personal accounts.Adviser A’s policies and procedures provided that the firm keep true and accurate records of any decisions to approve securities transactions by access persons for six years. As part of the firm’s policies and procedures, the CCO created a Securities Transaction Request Form (“Request Form”) to document the request and approval of access persons’ securities transactions. The access person would fill out the form and sign it, and the CCO would sign it as well to indicate her approval. Although the form was not required by the Code of Ethics, the CCO developed it to enable Adviser A to evidence compliance with access person approval processes. In practice, Request Forms were often not completed until after the transactions were made. According to the CCO, access persons would often obtain verbal approval of their transactions and then fill out and turn in the Request Form later. In such cases, the CCO provided the access person with a copy of the form with her approval signature and retained a copy for Adviser A’s records. On occasion, a Request Form was never completed.

The staff requested the firm’s preclearance policies and procedures as well as documents related to personal trading activity of one of Adviser A’s portfolio managers. The CCO gathered and produced these documents to the staff, including the Request Forms for the portfolio manager. Before producing these forms, the CCO modified approximately 170 forms in an attempt to show compliance with the firm’s Code of Ethics. This portfolio manager typically did not fill out and submit the Request Form until after he completed the trade, so many of his forms were signed after the transaction date. For any form where the portfolio manager’s or her signature did not match the trade date, which was true for the vast majority of the forms, the CCO changed the original date by writing over the original date or using whiteout to remove the original date, to make it appear as if the forms were signed on the transaction date. The CCO also filled in missing information on some forms before providing them to the staff. For transactions by the portfolio manager for which no form existed, the CCO created a Request Form and affixed the portfolio manager’s signature on the newly created form without the portfolio manager’s knowledge or authorization. When the staff questioned the CCO about the apparent alterations to the Request Forms, she claimed that the portfolio manager had filled out the forms incorrectly and that, at the time the forms were submitted to her, she made the changes. She did not inform Exam Staff that she modified the forms in response to their request or that she had created forms in instances where no form existed. By altering or creating fictitious forms, the CCO failed to keep true and accurate records required by Adviser A’s policies and procedures, and failed to provide the staff with true and accurate records. The CCO was fined $40,000 and is not permitted to act in any compliance capacity (including with an broker-dealer or investment adviser) for three years.

No Cherry Picking

07.09.25.The U.S. District Court (SDNY) entered a final judgment against Eric Cobb for cherry-picking trades between June 2019 and April 2022. According to the SEC, Cobb executed trades through an omnibus account and delayed allocation until a day or more after the trade. Profitable trades were directed to accounts held by Cobb and his wife; less favorable trades went to clients. Without admitting or denying the allegations, Cobb consented to the judgment: He is permanently barred from violating anti-fraud laws and from associating with any broker, dealer, or investment adviser and was fined $160,000. Information about a second cherry picking scheme is available here.

Inflated, Unauthorized, Unearned Fees Denied

07.03.25.The SEC alleges that Chicago-based investment adviser P/E Capital Investment Management Partners and its CEO, Eliseo Prisno, charged many of their advisory clients inflated, unauthorized, and unearned fees.

Investment Adviser AML Rule Postponed!

07.21.25. Investment adviser compliance with new AML rules has been pushed to Jan. 1, 2028. See here.