A New York investment advisor and broker-dealer firm and its former chief compliance officer have been fined and censured for not fixing compliance failures identified by two federal agencies, then altering documents in an attempt to convince investigators the failures had been addressed.
The firm, Gilder Gagnon Howe & Co., has been fined $1.7 million by the Securities and Exchange Commission (SEC), while its former CCO, Bonnie Haupt, has been fined $45,000, according to the SEC order released Thursday.
The SEC said Haupt, CCO and minority owner of GGHC from 2010-2018, did not conduct monthly reviews of the firm’s investment accounts for excessive commissions and trading from 2017 through early 2018, as had been ordered by another agency, the Financial Industry Regulatory Authority (FINRA). In late 2016, FINRA had ordered the firm to perform the monthly reviews because the agency concluded GGHC was not adequately monitoring its accounts for “turnover rate, cost-to-equity ratio, and in-and-out trading,” the SEC’s order said. FINRA also ordered Haupt to alert GGHC management if any accounts had a cost-to-equity ratio above 6 percent.
As part of its review of GGHC’s compliance with the FINRA order, the SEC requested documentation from GGHC and Haupt to show the increased monitoring had been completed in 2017 and 2018. The SEC also wanted to know if Haupt had been alerting GGHC management about the numerous accounts that had cost-to-equity rates above 6 percent.
Haupt allegedly submitted documents purporting to show she monitored the accounts each month. But the SEC said she used white-out to alter the dates on documents, then added handwritten notations to make it appear she was actively monitoring cost-to-equity ratios and turnover rates in its clients’ accounts.
“GGHC, however, did not conduct these reviews. In fact, throughout 2017, GGHC’s compliance department, including Haupt, who was required to conduct the reviews pursuant to GGHC’s policies, did not review any reports reflecting cost-to-equity ratios for its clients,” the SEC’s order said. She also did not escalate issues with the cost-to-equity rates to GGHC management, the SEC said.
As of December 2017, 80 percent of GGHC’s $9.75 billion in assets under management “pay commissions on a per-trade basis. The vast majority of its commission-paying accounts were levered by virtue of trading on margin,” the SEC said.
In addition to the fines and censure of GGHC, the SEC also ordered the firm to cease and desist from committing future violations. The agency ordered that Haupt be barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization; and prohibited from serving or acting as an employee, officer, director or member of an advisory board for, among other entities, an investment advisor and a registered investment company.
GGHC employed 26 portfolio managers with trading discretion over client accounts, the SEC said. Haupt, who lives in Florida, retired from the firm in 2018.