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Thursday
Aug172017

SEC fines chief compliance officer for inaccurate securities filing

The Securities and Exchange Commission Tuesday fined a chief compliance officer for failing to verify information provided by an investment adviser that turned out to be false.

David I. Osunkwo was fined $30,000 and suspended for a year from certain jobs related the investment adviser and securities industry.

Osunkwo, 55, lives in Charlotte, North Carolina. He's a licensed New York lawyer and also holds securities licenses. 

The SEC said he's self-employed and provided business and compliance consulting services through his firm, Strategic Consulting Advisors, LLC (SC Consulting), which is now defunct.

Through SC Consulting, Osunkwo served as the chief compliance officer of Aegis Capital, an SEC-registered investment advisor, and an affiliated investment advisor, Circle One.

Circle One filed an annual amendment to its investment adviser registration with the SEC in April 2011 that was intended to reflect a merger between itself and Aegis Capital. The merger would make them part of a common parent company.

The SEC alleged the filing materially overstated the assets under management (AUM) and total number of client accounts for Aegis Capital and Circle One.

According to the SEC, the filing overstated their combined AUM by over $119 million and their combined total client accounts by at least 1,000 accounts.

When preparing the filing, Osunkwo relied on estimates provided to him by the Chief Investment Officer (CIO) of the companies.

The SEC said the CIO sent Osunkwo an email that stated:

David – . . . I believe AUM was as follows on 12/31 Funds: $36,800,000 Schwab/Fidelity: $96,092,701 (1,179 accounts) (not sure how many customers) Circle One: probably higher than $50m, but hopefully [another employee] told you a number today Total is in the $182.89m range . . . .

Osunkwo and SC Consulting "adopted these estimates, without taking sufficient steps to ascertain their accuracy," the SEC said.

In the filing, Osunkwo listed the CIO as signatory certifying the filing, without confirming with the CIO.

As a result, Osunkwo and SC Consulting misstated that the CIO had also certified the contents to be true and correct, the SEC said.

The SEC settled the enforcement action on August 15 through an internal administrative order (pdf) and didn't go to court.

The SEC found that Osunkwo violated part of the securities law governing investment advisers that makes it “unlawful for any person willfully to make any untrue statement of a material fact in any registration application or report" filed with the SEC.

The SEC said a willful violation of the securities laws means "the person charged with the duty knows what he is doing.’” Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (quoting Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 1949)).

A violation can be willful even if the defendant was unaware that he or she was violating the law or an SEC rule, the SEC said.

Osunkwo didn't admit or deny the SEC's findings.

The administrative order bans him from working for any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization for twelve months. He's also suspended during that time from participating in any offering of a penny stock.

____

Richard L. Cassin is the publisher and editor of the FCPA Blog.

Reader Comments (2)

The position taken by the Securities and Exchange Commission is applaudable. Indeed this will send a clear message to others in the field of compliance that for sure compliance is not cheap, it should be seen to be practiced. If you think compliance is costly, try non-compliance. David I. Osunkwo as the Chief Compliance Officer with vast experience should have done enough of his work to verify the figures given in the email. The sender appears not even sure of the figures and to me I wonder what motivated David to circumvent due diligence. Was he motivated? I guess financially? This is a good example of willful blindness.
August 17, 2017 | Unregistered CommenterFidelis Mazividza
No doubt there was negligence here. And the compliance officer failed in his professional duty. It would be better, though, if the authorities had been able to rely on a rule he broke which specified negligence, rather than "willfully to make any untrue statement of a material fact ". It is twisting the ordinary meaning of the word "willful" to find that failing to take adequate steps to verify something is the same as willfully misstating something. The sentence "A violation can be willful even if the defendant was unaware that he or she was violating the law or an SEC rule, the SEC said." just does not make any sense. The essence of willfulness is a deliberate act, as opposed to negligence which is a failure to live up to a reasonable standard. Obviously the relevant standard here in practice is negligence. It does not do compliance standards and the proper enforcement of the rule of law any favours when the actual standards applied differ from those that an ordinary person (unfamiliar with the legal precedents) would understand from reading the plain words of the law.
August 21, 2017 | Unregistered CommenterBen Bowden
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