Consistency between Code of Ethics and Actual Gifts Received

from Cipperman Compliance Services

The SEC censured and fined an investment consultant and its principal $700,000 for lying about gifts received from recommended investment managers and performance information. The respondent’s marketing material claimed that neither the firm nor its principals took “so much as a nickel” from any investment manager. However, the firm’s Code of Ethics permitted gifts over $100 with pre-approval and under $100 without. The SEC asserts that personnel in the firm received tickets to the Masters Golf Tournament and other smaller gifts over a 4-year period, even where such gifts violated the Code of Ethics but the firm never imposed discipline. The SEC also accuses the firm of marketing hypothetical and back-tested performance without sufficient disclosure or backup.

OUR TAKE: Code of Ethics violations are an oft-cited SEC deficiency and should be remedied upon discovery (see Common OCIE Deficiencies). However, this firm compounded the problem by boasting about its Code of Ethics compliance in marketing materials. We do not recommend claiming 100% compliance with any rule as part of a marketing campaign.

https://www.sec.gov/litigation/admin/2017/ia-4647.pdf

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