Friday, April 29, 2016
SEC: Accounting Firm, Partner Conducted Deficient Surprise Exams
The SEC’s order finds that Santos, Postal & Co. P.C. and Joseph A. Scolaro conducted deficient surprise custody examinations of SFX Financial Advisory Management Enterprises and did not adequately consider fraud risk factors. They twice filed paperwork with the SEC that contained untrue statements. In one instance they stated that they complied with certain procedures to verify client assets when in fact they never did. In the second instance they stated that client assets were held with a qualified custodian when in fact they were not.
“Surprise custody exams of investment advisers serve a critical role in protecting against the misuse of client assets and uncovering such misuse when it occurs,” said Anthony S. Kelly, Chief of the SEC Enforcement Division’s Asset Management Unit. “Santos, Postal & Co. failed to confirm with SFX’s clients the contributions made to and from their accounts and then made untrue statements about its custody exams.”
The SEC previously announced charges against SFX’s president Brian J. Ourand, who was later found by an administrative law judge to have misappropriated funds from client accounts in violation of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. In the initial decision issued last month, Ourand was ordered to pay disgorgement of $671,367 plus prejudgment interest and a $300,000 penalty, and he was barred from the securities industry. SFX and its CCO separately agreed to settlements.
Santos, Postal & Co. and Scolaro consented to the SEC’s order finding that they violated Section 207 of the Advisers Act and engaged in improper professional conduct pursuant to Section 4C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission’s Rules of Practice. Without admitting or denying the findings, they agreed to be suspended from appearing and practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies. The SEC’s order permits Santos, Postal & Co. to apply for reinstatement after one year and Solaro after five years.
Santos, Postal & Co. also agreed to disgorgement of $25,800 in profits that the firm obtained for performing the exams plus interest of $3,276.76 and a penalty of $15,000. Scolaro agreed to pay a $15,000 penalty.
SEC Press Release
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Labels: SEC Enforcement