Once again, the Securities and Exchange Commission has reached a settlement with a chief compliance officer over allegations of either wrongdoing or negligence. The settlement, reached on Aug. 15 also offers a reminder regarding the potential hazards of retaining third party compliance services.
The case in question dates back to March 30, 2015 when the Commission instituted public administrative and cease-and-desist proceedings against David I. Osunkwo and other parties.
In 2010 and 2011, Aegis Capital and Circle One Wealth Management, registered investment advisers affiliated because of common control, failed to file timely and accurate reports with the Commission.
Aegis Capital failed to file an annual update to its Form ADV for the 2010 fiscal year.
Circle One filed an annual amendment to its Form ADV with the Commission in April 2011 that was intended to reflect a merger between the two investment advisers under common ownership and control of the same corporate parent holding company, Capital L Group. That filing materially overstated the assets under management and total number of client accounts for Aegis Capital and Circle One, the SEC alleges.
In filing that Form ADV, Osunkwo relied on estimates that the registrants’ Chief Investment Officer provided him, the SEC says. But he “did not take sufficient steps to ascertain the accuracy of those numbers and caused the report to falsely represent that the CIO attested to the accuracy of that information.” As a result, Circle One’s Form ADV contained inaccurate information.
Osunkwo, a resident of North Carolina, is self-employed and provides business and compliance consulting services through affiliations with other firms, including SC Consulting, a now defunct firm that offered compliance consulting and outsourced CCO services to variety of investment management firms. Osunkwo was one of the principals of SC Consulting, and during 2010 and 2011.
Aegis Capital and Circle One retained the firm to assist them in performing certain compliance functions as well as to provide an outsourced chief compliance officer to the registrants. Osunkwo was designated, and served as, Aegis Capital’s and Circle One’s CCO.
For 2010 AUM and account information, he relied on estimates provided to him by the CIO. Specifically, the CIO sent him an email that stated:
“David… I believe AUM was as follows on 12/31 Funds: $36,800,000 Schwab/Fidelity: $96,092,701 (1,179 accounts) (not sure how many customers) Circle One: probably higher than $50m, but hopefully [another employee] told you a number today. Total is in the $182.89m range…”
Osunkwo and SC Consulting adopted these estimates, “without taking sufficient steps to ascertain their accuracy,” when they filed Circle One’s annual amendment to Form ADV for the December 31, 2010 year end was filed on April 4, 2011, the SEC said.
Given the impending deadline for filing the Form ADV, Osunkwo listed the CIO as signatory certifying the ADV without confirming with him. “As a result, the form that Osunkwo and SC Consulting filed misstated that the CIO had also certified the contents to be true and correct,” the Commission alleged.
As a result of the conduct described above, Osunkwo caused Aegis Capital’s violations of, Section 204 of the Advisers Act and Rule 204-1(a)(1), which require registered investment advisers to amend their Form ADV “at least annually, within 90 days of the end of [their] fiscal year… and more frequently, if required by the instructions to FormADV.”
As a result of the conduct described above, Osunkwo also willfully violated Section 207 of the Advisers Act, which makes it “unlawful for any person willfully to make any untrue statement of a material fact in any registration application or report filed with the Commission under Section 203, or 204, or willfully to omit to state in any such application or report any material fact which is required to be stated therein.”
The Aug. 15 settlement stipulated that Osunkwo be suspended from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization for a period of twelve months. He was also required to pay a civil money penalty of $30,000.
Osunkwo did not admit or deny the findings in the SEC order.