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SEC (Securities and Exchange Commission) Sanctions Three Investment Advisory Firms Under Compliance Program Initiative

On October 23, 2013, the SEC sanctioned Modern Portfolio Management, Inc. (MPM), Equitas Capital Advisers, LLC and Equitas Partners, LLC (collectively, the Equitas firms), and certain of their owners and officers for repeatedly ignoring problems with their compliance programs. The three investment advisory firms were identified through the SEC’s Compliance Program Initiative, which targets firms that previously have been warned by the SEC’s examination staff about significant deficiencies in their compliance programs but have failed to take action to effectively remedy the identified compliance problems.

The SEC’s order against MPM found that MPM and its owners failed to complete the annual compliance review required by Rule 206(4)-7 under the Advisers Act in 2006 and 2009 and made misleading statements on its website and in its Form ADV. The SEC order stated that these violations continued after being identified through SEC examinations in 2008 and 2011. MPM and its owners agreed to pay a total of $175,000 in civil monetary penalties. In addition, MPM undertook to retain a compliance consultant for three years and its owners agreed to complete additional compliance training.

The SEC’s order against the Equitas firms found that, for the period from 2005 through 2011, the Equitas firms and their owner, chief compliance officer, and former owner and chief compliance officer failed to adopt and implement written compliance policies and procedures and conduct the annual compliance reviews required by Rule 206(4)-7 under the Advisers Act. The SEC also found that the Equitas firms made false and misleading disclosures about past performance, compensation and conflicts of interest and consistently overbilled and underbilled their clients. The SEC order stated that these violations occurred despite warnings from the SEC examination staff in connection with examinations conducted in 2005, 2008 and 2011. The Equitas firms and their current and former owners agreed to pay a total of $225,000 in civil monetary penalties. In addition, the Equitas firms undertook to retain a compliance consultant for three years.

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Vedder Price P.C. attorneys provide a full range of services to a diverse financial services clientele. Attorneys practicing in the firm’s Investment Services Group are experienced in all aspects of investment company and investment adviser securities regulations, broker-dealer regulatory and compliance matters, derivatives and financial product matters, and ERISA and tax matters. Clients include mutual fund complexes, hedge and other private funds, money managers, broker-dealers, independent directors, and many other types of institutions such as banks, savings and loans,...

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