SEC cites ‘inadequate’ compliance in fraud charges against radio host

The SEC’s complaint alleges Springer Financial Advisors (SFA) and its owner, Keith Springer, received millions of dollars in undisclosed compensation and other benefits for recommending certain investment products while claiming they did not have any conflicts of interest. According to the complaint, many clients learned of Springer through his local radio show, “Smart Money with Keith Springer,” and Springer misled prospective clients into believing he was selected to host the show because of his industry expertise.

“In reality, SFA paid to broadcast the show,” the SEC said. The SEC’s complaint further alleges Springer went to great lengths, including hiring search engine suppression consultants, to conceal prior charges by the SEC and his disciplinary history with the New York Stock Exchange.

“Our complaint alleges that Springer actively targeted vulnerable retirees by misleading them about his prominence in the industry and promising to act in their best interests,” said Erin Schneider, director of the SEC’s San Francisco Regional Office. “Investment advisers must be truthful about their background and fully disclose all conflicts of interest.”

‘Inadequate’ compliance called out

From April 2016 through April 2018, Springer held the title of chief compliance officer at SFA. The SEC’s complaint describes a handful of compliance failures at the company, including:

Inadequate compliance policies and procedures: According to the SEC’s complaint, SFA’s written compliance policies and procedures were outdated and not tailored to SFA’s actual business practices. “SFA’s compliance manual, which constituted its compliance policies and procedures, was not updated substantively between 2009 and 2017, even though SFA’s business practices changed significantly during that period and outside compliance consultants recommended changes to SFA’s policies and procedures that SFA did not make,” the complaint states.

A lack of policies altogether in some cases: Moreover, although a substantial portion of SFA’s business included sales of annuities to its advisory clients and the use of a third-party asset manager, there were no policies or procedures concerning either practice, according to the complaint. “SFA also lacked any policies regarding how the firm should identify, disclose, and address potential and actual conflicts of interest,” the complaint states.

Advertising policy too ‘generic:’ The SEC complaint also states SFA’s advertising policy was “generic, with no specific guidelines with respect to certain frequently used marketing materials, such as Springer’s radio show and SFA’s website.”

Failure to implement compliance policies: According to the SEC, SFA failed to not only adopt adequate compliance policies and procedures—it failed to implement the policies and procedures it did have. For example, SFA did not follow its advertising policy of having its chief compliance officer or other designated officer sign and date all advertisements.

Lax leadership: During the relevant period, Springer retained ultimate responsibility for maintaining an adequate compliance program for SFA, the complaint stated. Springer “knew, or was reckless in not knowing,” that SFA failed to adopt and implement written policies and procedures reasonably designed to prevent violation by the firm and its supervised persons.

Failure to maintain accurate books and records. SFA failed to keep records of when it delivered certain forms and reviews, according to the SEC. “Springer knew, or was reckless in not knowing, that SFA failed to maintain certain books and records as required,” the complaint stated.

The SEC’s complaint, filed in U.S. District Court for the Eastern District of California, charges Springer and SFA with violating the anti-fraud provisions of the federal securities laws as well as SEC rules concerning advertisements, compliance, required disclosures, SEC reporting, and recordkeeping. The SEC is seeking injunctions, disgorgement of allegedly ill-gotten gains, and civil penalties.