The Securities and Exchange Commission last week brought fraud charges against the former president of SFX Financial Advisory Management Enterprises for stealing client funds. The firm and its chief compliance officer separately agreed to settle charges that they were responsible for related compliance failures and other violations.
According to the SEC, SFX’s former president, Brian Ourand, "misused his discretionary authority and control over the accounts of several clients to steal approximately $670,000 over a five-year period by writing checks to himself and initiating wires from client accounts for his own benefit." The matter will be scheduled for a public hearing before an administrative law judge for proceedings to adjudicate the SEC's allegations and determine what, if any, remedial actions are appropriate.
The SEC separately charged SFX and its CCO Eugene Mason, finding that the firm failed to supervise Ourand, violated the custody rule, and made a false statement in a Form ADV filing. According to the SEC, "Mason caused some of SFX’s compliance failures by negligently failing to conduct reviews of cash flows in client accounts, which was required by the firm’s compliance policies, and not performing an annual compliance review. Mason also was responsible for a misstatement in SFX’s Form ADV that client accounts were reviewed several times each week."
“Investment advisers have a fiduciary obligation to safeguard client assets,” said Marshall Sprung, Co-Chief of the SEC Enforcement Division’s Asset Management Unit. “SFX failed to detect an alleged misappropriation for years because it had insufficient internal controls to limit Ourand’s ability to withdraw client funds for personal use.”
SFX and Mason agreed to pay penalties of $150,000 and $25,000, respectively.