The SEC brought administrative proceedings against Buckingham Capital Management, Inc. (BCM), a registered investment adviser, and its registered broker-dealer parent company, The Buckingham Research Group, Inc. (BRG), for failure to establish, maintain and enforce compliance policies and procedures reasonably designed to protect material nonpublic information, taking into account the nature of their respective and interconnected businesses – including forthcoming research and pending customer and portfolio trades. BCM also failed to conduct the required annual review of its compliance policies and procedures for 2005. The former chief compliance officer for both firms, Lloyd Karp, was found to have aided and abetted and caused those failures. The two firms have a close working relationship. They share common office space and management, and BCM's trading accounts for approximately 25 percent of BRG's commission revenue. The firms and Karp agreed to settle the SEC's case against them.
The SEC's order also found that, while preparing for a 2006 examination by SEC staff, BCM discovered that it was missing pre-approval forms for more than 100 employee trades in 2005. Instead of producing the incomplete employee trading records to the SEC exam staff, BCM altered its records by creating and adding forms, and produced the existing records along with the added forms to the SEC exam staff without telling the staff what it had done. In addition, BCM discovered that its compliance review logs for 2005 and 2006 were incomplete. Karp, who was on medical leave during the 2006 examination, had not initialed and dated the compliance logs and had not checked them regularly. Instead of producing the incomplete compliance logs, BCM staff altered the firm's records by replacing the incomplete logs with newly-created ones. The SEC found that BCM then produced the newly created replacement logs to the SEC exam staff without disclosing what had been done.
The firms and Karp agreed to settle the SEC's cases against them. Without admitting or denying the SEC's findings, BRG agreed to pay a penalty of $50,000, BCM agreed to pay a penalty of $75,000, and Karp agreed to pay a penalty of $35,000. They also consented to an order that: censures all of the respondents; requires BRG to cease and desist from committing or causing any violations or future violations of Section 15(f) of the Exchange Act; requires BCM to cease and desist from committing or causing any violations and any future violations of Sections 204(a), 204A and 206(4) of the Advisers Act and Rule 206(4)-7 thereunder; and requires Karp to cease and desist from causing any violations and any future violations of Section 15(f) of the Exchange Act and Sections 204A and 206(4) of the Advisers Act and Rule 206(4)-7 thereunder. The order also requires that both firms engage an independent consultant to review and make recommendations regarding their compliance policies and procedures.
A copy of the SEC complaint can be read in its entirety by clicking on the following link: http://www.sec.gov/litigation/admin/2010/34-63323.pdf.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
