SEC Faults Firm for Procedures That Failed to Catch Fraud

By:
Chris Gaetano
Published Date:
May 2, 2016
SECURITIES-AND-EXCHANGE-COMMISSION-facebookThe Securities and Exchange Commission has charged an accounting firm for insufficient surprise inspections that failed to catch fraud undertaken by an investment adviser. The firm, Postal & Co. P.C. and one of its partners, Joseph A. Scolaro, performed surprise inspections of SFX Financial Advisory Management Enterprises. These inspections, however, fell far short of what was required to properly oversee the investment adviser. The SEC said the accounting firm not once but twice filed paperwork with the commission that contained false statements. Though Postal & Co. said they made sure to verify client assets, the SEC said they never actually did. The commission also said the firm stated 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 already charged the head of SFX, Brian Ourand, with stealing over $670,000 from three of his clients. He has since been ordered to disgorge the money, plus pay an additional $300,000 penalty. 

The accounting firm agreed to settle the SEC's charges against it by disgorging $25,800 in profits the firm got for performing the exams, plus $3,276 in interest, plus an additional $15,000 in penalties. The firm and the partner is also suspended from appearing and practicing before the SEC as an accountant for at least five years. 

 

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