An examination of a firm’s books and records fond discrepancies in the services offered in the Investment Advisory and Financial Planning Contract. The firm incorrectly stated it charged fees in arrears when it actually charges in advance. The advisor’s username and password automatically populated, bypassing an important privacy/security feature. The firm had engaged in financial planning services with three clients without a contract. The firm was charged the $100 examination fee and a $500 fine for violations. The fine was suspended after a pre-established 60 day compliance review was completed
An examination of a firm’s books and records found that the billing occurred quarterly in advance. The contract outlined how fees would be billed if a client established the relationship in the middle of a calendar quarter, but did not include a refund policy if the relationship was terminated during a calendar/billing quarter. The Division ordered the addition of a refund policy for unearned fees into the contract.
In reviewing a firm’s books and records, it was determined that the firm had a hedge clause in its investment advisory contract with clients. The Division ordered that it be removed, as to not mislead clients to their rights under federal and state securities law.
An examination of a firm’s books and records uncovered a number of discrepancies between the fee structure outlined in the ADV Part 2 and the Investment Advisory Contract. The firm was required to reconcile these documents and update other dated or missing information in the IARD system within a set timeframe established by the Division.
An examination of an Albuquerque Registered Investment Adviser’s (RIA) books and records resulted in the discovery of improper disclosures in the firm’s brochure, a minimum net worth below the amount required, and a pattern of late registration for both the RIA and its representative. The firm was given a set time to bring itself into compliance and invoiced for the examination. The Division did not receive a satisfactory response and was referred to Enforcement for action.
On November 20, 2014 the Securities Division issued a Notice of Contemplated Action to BOSC, Inc. and Thomas Wayne Hayes. This was a result of a long-term, ongoing investigation into the alleged mismanagement and improper investments made by Bernalillo County Treasurer’s Office (“BCTO”). In summary, Tom Hayes (“Hayes”) and his employer BOSC, Inc. (dba Bank of Albuquerque) failed to ensure that investments made by BCTO were in line with the written investment policy and made recommendations that were not suitable. Hayes continued to sell bonds to the county based on yield with no concern of safety or liquidity. Hayes’s conduct went against BOSC’s policies and procedures. Further, BOSC failed to supervise Hayes and his sales practices and did not prevent or detect violations of suitability of recommendations. It is proposed that Hayes will be permanently barred from transacting business in New Mexico; BOSC will be suspended from conducting business in New Mexico as a broker-dealer until their supervisory system is adequate to prevent or detect violations; $10,000 fines will be assessed against BOSC and Hayes for each violation of the New Mexico Securities Act; BOSC and Hayes will each pay $10,000 towards the cost of the investigation.
On November 20, 2014 the Securities Division issued a Notice of Contemplated Action to Oppenheimer & Co., Inc. (“Oppenheimer”) and Royce O. Simpson (“Simpson”). This was a result of a long-term, ongoing investigation into the alleged mismanagement and improper investments made by Bernalillo County Treasurer’s Office (“BCTO”). Oppenheimer terminated Simpson in February 2014 during an internal review of the servicing of the BCTO account. In summary, Simpson was granted an unfair advantage over other broker-dealer agents in competing for BCTO’s business. Simpson and Oppenheimer failed to ensure that solicited investments offered to BCTO were suitable and in line with the written investment policy of the county. The county’s priorities were “safety, liquidity and yield.” Ultimately, BCTO had an overconcentration of long-term of Government Sponsored Enterprise bonds with 10 to 20 year maturities, leaving it at a greater risk for interest rate and liquidity risk. Neither Oppenheimer nor Simpson disclosed that the recommendations were not suitable. Oppenheimer’s supervisory system failed to reasonably detect or prevent violations. It is proposed that Simpson will be permanently barred from transacting business in New Mexico; Oppenheimer will be suspended from conducting business in New Mexico as a broker-dealer until their supervisory system is adequate to prevent or detect violations; $10,000 fines will be assessed against Oppenheimer and Simpson for each violation of the New Mexico Securities Act; Oppenheimer and Simpson will each pay $10,000 towards the cost of the investigation.
An examination of a firm’s books and records revealed that a firm that charges its clients fees in advance did not have a refund policy to return unearned fees. Two clients had terminated after they had prepaid fees for the quarter and no refund was offered. The firm contacted both past clients and issued refunds of the unearned fee.
An examination of an Albuquerque Investment Advisor revealed a lack of security for client’s non-public identifying information. Old client records were being stored in an open area in cardboard file boxes and non-locking file cabinets in an open kitchen/storage area. Advisor was instructed to store these items in locking file cabinets or a locked storage room to further ensure client’s private information.
A review of the books and records of an Albuquerque Investment Advisor revealed a lack of contract with clients. The firm primarily acts as a solicitor for third-party investment advisory firms. The firm would deliver the third-party agreements and have the clients sign, they did not have their own investment advisory agreement with the clients. The firm has since created an investment advisory contract that all clients are required to enter into t conduct business with the advisor.
An examination of a Santa Fe Investment Advisor determined that a solicitor was being paid an ongoing fee for client referrals and was not registered as an investment advisor. The registered investment advisor and the individual receiving the referral fees were sent notification of the apparent violation of 184.108.40.206 NMAC. In addition, there were no written policies and procedures, a violation of Rule 220.127.116.11A.(17) NMAC. This had been noted in a previous examination, but not corrected. The firm was charged the cost of the examination.
During the examination of a Investment Advisor the review of the firms trade blotter and fee invoice found the firm was withdrawing surrender-free money from accounts for which a client was paying percentage of assets under management and pruchasing annuity add-ons for which a commission was earned for the same period, a violation of NMAC 12.11.7K(2). When the overbilling was detected, the client was contacted and the fee was credited to the client.
While reviewing the records of an Investment Advisor firm with multiple representatives, it was discovered that representatives were not disclosing their outside business activities. They also did not disclose personal bankruptcies as required. The firm was operating without the designated principal having the required S24 examination, nor did the principal have a professional designation waiver. All disclosures were updated and the designated principal obtained the required S24 examination, no further action was required.
An examination of an Albuquerque registered Investment Advisor showed the firm had two representatives registered without the designated principal holding the proper S24 examination, or professional designation waiver. The firm was given a deadline for the designated principal to take the S24 examination. The firm failed to do so even after being given another extension of time. The firm voluntarily terminated the other representative. While the individual is still employed with the firm the individual cannot give any investment advice to clients and now has an operational role.
During the examination of a SEC Investment Advisor firm who switched to state registration, the firm had an investment adviser representative who executed over 100 trades without being registered in New Mexico, in violation of the New Mexico Uniform Securities Act. The firm was fined $5,500 in civil and investigative costs and had to pay the $100 cost of the examination.
During the review of the firm’s application, the firm transacted business in New Mexico without being licensed, in violation of the New Mexico Uniform Securities Act. The firm was fined $3,500 and had to pay registration fees in the amount of $350.
An Investment Advisor firm was recently examined after switching from SEC to state jurisdiction. The examination found the firm borrowed money and issued promissory notes to existing clients in violation of the New Mexico Uniform Securities Act. The firm was fined $7,500 and had to pay the $100 cost of the examination.