A Securities and Exchange Commission (SEC) action against a former registered investment adviser yielded a notable takeaway for others in the industry engaging consultants for compliance program support.
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The SEC issued a joint penalty of $15,000 against Gainvest Legal Corp. and its owner, Nashid Ali, according to an administrative proceeding published Tuesday. Gainvest was accused of improperly registering as an investment adviser, holding client funds without proper examination controls, and failing to adopt and implement a proper compliance program as required by the Advisers Act.
To that last point, the SEC noted the following:
“After an interview with the commission’s examination staff … Gainvest hired a consulting firm to draft a compliance manual. However, after the consulting firm provided Gainvest with a preliminary draft to review so it could be tailored to Gainvest’s business, Gainvest never edited the draft, and thus the policies and procedures did not address the firm’s operations, failing to include, for example, the risks associated with its business.”
These alleged failures contributed to Gainvest’s observed lapses occurring from July 2019 through November 2022, which is when the firm ceased operating as an investment adviser.
Gainvest could not be reached for comment.
Senior officials at the SEC have made clear the agency has little tolerance for firms that appear to take shortcuts in their compliance obligations. Gurbir Grewal, director of the agency’s Enforcement Division, addressed the topic in his first publicized speech in the role in 2021.
“[F]irms need to think rigorously about how their specific business models and products interact with both emerging risks and enforcement priorities and tailor their compliance practices and policies accordingly,” Grewal said.
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