Investment Adviser Admits It Failed to Stop Ex-President from Stealing Client Funds
Investment advisers and other professionals who handle investor funds have a legal duty to ensure their employees and agents do not misappropriate those funds for personal use. An investment adviser registered with the U.S. Securities and Exchange Commission must “adopt and implement written policies and procedures reasonably designed to prevent” violations of federal securities laws. A company can then be held liable for failing to enforce its written policies to the detriment of investors.
In the Matter of SFC Financial Advisory Management Enterprises, Inc.
On June 15, a Washington, DC-based investment adviser agreed to settle SEC charges arising from its failure to protect investors from theft by its former president. SFX Financial Advisory Management Enterprises, Inc., is a specialized financial adviser that primarily serves current and former professional athletes. According to regulatory filings, SFX Financial controls about $15 million in client assets.
Brian Ourand served as SFX Financial’s vice president for four years, and later as president. In 2011 SFX Financial’s chief compliance officer, Eugene S. Mason, discovered Ourand “had misappropriated assets when a client complained that he could not use his credit cards.” After Mason conducted an internal investigation, SFX Financial fired Ourand and referred the matter to federal authorities.
Altogether, SFX Financial acknowledged Ourand stole “at least $670,000” from three clients over a period of five years. Ourand used his signatory power over client bank and brokerage accounts to write checks made out to “cash” and to make wire transfers to his personal accounts. And, as noted with the client above, Ourand used client credit cards without permission.
SFX Financial and Mason acknowledged they failed to properly supervise Ourand. The SEC’s order said the company’s “compliance policies and procedures were not reasonably designed, and were not effectively implemented, to prevent the misappropriation of client funds.” Put another way, Mason and others failed to periodically review client accounts to ensure there were no improper withdrawals of cash. And even after learning of Ourand’s theft, the SEC said Mason failed to conduct a required annual review of SFX Financial’s compliance program to ensure it could not happen again.
SFX Financial agreed to pay a $150,000 fine to settle the SEC’s civil charges. Mason will pay a $25,000 fine. Separately, the SEC filed an administrative complaint against Ourand, charging him with violating the Advisers Act. An SEC administrative law judge will hear the case later this year.
Who Watches the Watchers?
The first duty of any investment adviser or fiduciary is to protect client assets. But as cases like SFX Financial demonstrate, an unethical employee can steal investor funds for years before they are caught when a company fails to follow its written compliance policies. It is not enough for a company to say it follows the law. It must demonstrate it is actively watching its employees to ensure compliance. If you have lost money with an investment adviser due to employee theft and need independent legal advice from an experienced Florida securities fraud attorney, contact Gregory Tendrich, P.A., in Boca Raton right away.