A financial services company agreed to pay $4.5 million to settle SEC charges that the company failed to implement supervisory procedures to adequately protect the funds of retail investors.
As explained in the Order, the SEC found that deficiencies in two automated supervisory systems used by Ameriprise Financial Services Inc. ("Ameriprise") resulted in a failure to identify that five representatives misappropriated client funds on numerous occasions. The SEC determined that the deficiencies were derived from a technical issue with one system and a design limitation in the second. According to the SEC, the systems were not reasonably designed or equipped to detect whether representatives were engaging in potentially fraudulent money movements.
Five representatives were accused of collectively misappropriating more than $1 million in client assets. They were terminated by Ameriprise, and three have pled guilty to criminal charges.
The SEC noted that Ameriprise has since implemented acceptable supervisory systems and reimbursed affected customers for all funds lost as a result of the alleged misappropriation.
In connection with the settlement, the SEC Division of Corporation Finance granted Ameriprise no-action relief from being considered an "ineligible issuer" under Securities Act Rule 405. The Division determined that Ameriprise qualified for the exemption by demonstrating a showing of "good cause."
Commentary / Mark Highman
This case is a reminder that where firms use automated surveillance tools, effective supervision involves monitoring the technologies for both design limitations and technical malfunctions. As this case shows, failure to do so can result in harm to investors and steep fines for firms.
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.
