August 19, 2025
What happened?
On July 11, 2025, the SEC announced settled charges against a registered investment adviser (“RIA”), its CCO, and its president for creating backdated documents and producing them during an SEC examination; failing to adequately disclose conflicts of interest; and overbilling client accounts.
In response to a request for documents by SEC examiners, rather than saying the RIA did not have the documents, the CCO created compliance documents for three calendar years as if they had been completed on time. These documents memorialize annual compliance reviews as required by the firm’s written policies and procedures. According to the order, the three documents were signed and backdated by both the CCO and president of the firm before being provided to the SEC examiners. The backdated documents covered all the annual reviews that fell within the examination period.
The SEC found that both the CCO and president of the firm willfully aided and abetted the firm’s violation of the Books and Recordkeeping Rule and failed to follow the firm’s written policies and procedures around documenting the annual review.
Additionally, the firm had inaccurately billed advisory fees and failed to fully disclose the ability of an affiliated broker to charge markups on various transaction and account service fees. The SEC examination revealed the inaccurate billing. Advisory fees were collected erroneously on alternative investment positions. Account agreements stated that these illiquid investments would not be charged an advisory fee.
The RIA was censured and ordered to pay a $1.75 million civil monetary penalty. In separate orders, the CCO and the president of the firm were ordered to pay civil monetary penalties of $10,000 and $20,000, respectively.
What does this mean for me?
A cover-up can lead to a worse outcome than the violation itself. It’s hard to say what would have happened if the CCO had responded honestly and admitted that annual reviews were not completed. Do not put yourself and your firm in that position.
Rule 206(4)-7 of the Advisers Act requires a review, no less frequently than annually, of the adequacy of the firm’s policies and procedures and the effectiveness of their implementation. SEC examination request lists always include a request for any “reports and documentation generated to evidence the Adviser’s annual compliance review” performed pursuant to the Rule. Requests can ask for any annual reviews performed during the Examination Period, which covered three annual reviews in this instance.
If you have not completed your last annual compliance review, use this enforcement action as a reminder to move quickly and stay on pace with your annual review. Do not let yourself fall behind.
If your compliance program needs support completing annual compliance reviews or preparing for SEC examinations, contact us.
