Investment adviser fined $50K for compliance lapses following founder/CCO’s death

E. Magnus Oppenheim & Co. (EMO) also failed to conduct best execution reviews for its advisory clients from 2019-21, the Securities and Exchange Commission (SEC) alleged Monday in its order. In settling, the firm agreed to be censured and cease and desist from future violations.

The details: In June 2019, the firm’s namesake and founder died. E. Magnus Oppenheim had served as president, chief investment officer, and CCO.

The firm, which controls about $56 million in assets for 95 clients as of February, responded by hiring a compliance officer from a third-party service and handed over control of day-to-day operations to a portfolio manager and an administrative employee. EMO was purchased by another firm in January.

EMO was informed by the SEC’s Division of Examinations in 2019, and again in 2021, its policies and procedures for complying with the Advisers Act and other SEC rules were inadequate, according to the agency. The 2019 examination determined the firm’s policies had been copied from another investment adviser’s compliance manual without removing that firm’s name or tailoring the policies to EMO’s business. EMO’s policies included references to research analysts it did not employ, the SEC said.

EMO’s policies and procedures failed to address potential violations of the Advisers Act in areas involving “access to client funds and custody, political contributions made by respondent or its covered associates, valuation of client assets, billing fees, and conducting due diligence of third-party service providers,” the order said.

The firm failed to conduct best execution reviews by failing to “make an adequate assessment of the commission rates, fees, or ticket charges charged by its clearing broker; try to negotiate better terms with its clearing broker; or make an adequate assessment of the commissions, fees, ticket charges, and execution quality available from other clearing brokers,” the SEC said.

The 2019 examination also cited the firm for “failing to establish procedures in the event of the loss or incapacitation of key individuals, including Mr. Oppenheim,” the order said.

Compliance ramifications: The SEC ordered the firm to hire an independent compliance consultant who will be tasked with reviewing its policies and procedures. That review will be limited to the issues cited in the SEC’s 2021 examination and to compliance policies and procedures applied by the firm’s new owner to business conducted by EMO.

The consultant must submit a report to the SEC within 90 days.

EMO did not respond to a request for comment. The firm did not admit or deny the SEC’s findings.