It’s been a difficult fall season for bad actors acting badly and for those who hire them.
Just last month, the Securities and Exchange Commission’s (SEC) Office of Compliance Inspections and Examinations (CIE) announced its intention “to conduct examinations of registered investment advisers that employ or contract with supervised persons that have a history of disciplinary events.” If you hire a someone with a track record of “disciplinary events,” including being barred from being a broker-dealer, the OCIE says be forewarned that it is launching an initiative to examine your supervision practices and compliance programs.
And the SEC isn’t the only one looking…
…The US Commodity Futures Trading Commission (CFTC) is getting into the act too! The Commission filed an order instituting proceedings and settling charges against Aden Rusfeldt (aka “Big A”) of Vail, AZ, because Big A “fraudulently failed to disclose to prospective and current customers of his company, EFT Trend Trading, that he was prohibited from engaging in any commodity-interest-related activity under a prior Court Order.”
The CFTC ordered Big A to pay in total more than $3.2 million in restitution and as a civil monetary penalty for fraudulent omissions the fact that he was previously sued by the CFTC for fraud in 2007 and permanently enjoined from engaging in any commodity interest-related activity.
In 2007, the CFTC filed a Complaint in the Southern District of Texas, alleging that Rusfeldt, through his company Rusfeldt Investments LLP (Rusfeldt Investments), fraudulently solicited members of the retail public. A year later, the Court entered a Consent Order of Permanent Injunction and Other Equitable Relief (Consent Order), which found that the defendant violated certain anti-fraud provisions of the Commodity Exchange Act (CEA) and ordered Rusfeldt and Rusfeldt Investments to pay restitution, a civil monetary penalty, and permanently prohibited Rusfeldt and Rusfeldt Investments from engaging directly or indirectly, in any activity related to trading in any commodity interest.
Despite that action, Big A got back into the market, selling a variety of commodity interest related services and educational materials to more than 500 customers through ETF Trend Trading. The CFTC Order requires Rusfeldt to pay restitution in the amount of $2,238,170 and a civil monetary penalty of $980,000; permanently prohibits him from trading on any registered entity, as defined in the CEA, or registering with the CFTC; and bars him permanently from engaging in any commodity interest related activities. The Order also requires Rusfeldt to cease and desist from violating the provisions of the CEA and CFTC Regulations, as charged.
What if Big A was one of yours?
We already know the Security and Exchange Commission frowns on firms hiring someone with a track record of “disciplinary events,” including being barred from being a broker-dealer. The Financial Industry Regulatory Authority does too. And now, the CFTC…
Protect yourself. Make sure you’ve got the right policies, procedures, and oversight in place to ensure you are fostering robust top-down compliance culture which the regulators consider critical to setting the ethical environment of the organization and preventing misconduct.
Examiners will check out your written supervisory procedures, including your practices surrounding your ongoing reporting obligations, and complaint handling processes. In the world of compliance, the past matters. And, you have to say something, make sure to say it. Sins of omission are…in fact, sins! The examiners will likely review your practices regarding disclosures of any regulatory, disciplinary, or other actions with a focus on assessing the accuracy, adequacy, and effectiveness of such disclosures.
Ready for review?
Are you ready for scrutiny under the regulatory microscope? You should be, and you can be. Compliance may be a job without end, but procrastination is a lot costlier. Make sure you’ve got a strong compliance infrastructure in place.
Got questions? Then, let’s talk (212-233-1155). Ask about Patrina’s comprehensive compliance solutions and compliance recordkeeping specifically designed for the financial services community.