Securities Regulation Daily Wrap Up, ENFORCEMENT—New York investment adviser, officers settle SEC charges for violations of safeguard rules, (Dec 27, 2017)

By Gregory Kane, J.D., M.B.A.

A New York-based investment adviser, its president and its CCO settled SEC charges for multiple and persistent compliance deficiencies in its operations. The company agreed to hire an independent compliance consultant and to adopt the recommendations of that consultant’s investigation (In the Matter of Southwind Associates of NJ Inc., Release No. 34-82397, December 22, 2017).

Southwind. New York-based investment adviser Southwind Associates of NJ Inc. (d.b.a. Villafranco Wealth Management) (Southwind), its president and sole owner Scott Villafranco, and its former Chief Compliance Officer Anthony LaPeruta agreed to a settlement with the SEC for numerous violations of several Adviser Act provisions and rules. Prior SEC examinations in 2003, 2006, 2013 noted deficiencies relating to compliance with the Custody Rule, the Compliance Rule and books and records requirements under the Advisers Act which Southwind failed to fully correct. Violations included the lack of surprise examinations of client funds and securities, a failure to timely distribute audited financial statements, a failure to maintain and preserve records and electronic communications and a failure to adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act.

The SEC also found that the confidentiality and security of client records were put at risk when a former internal IT employee forwarded all of the company’s sent and received electronic communications to a Gmail account; an account Southwind cannot access following that employee’s termination. LaPeruta was aware of each violation but neglected to address them despite having the responsibility to do so. Villafranco was also aware of the violations but failed to take adequate steps to ensure they were addressed.

Agreement. Without admitting or denying the SECs findings, Southwind, LaPeruta and Villafranco agreed to a cease-and-desist order for violations of Section 204(a) and 206(4) and Rules 204-2(a)(7), 206(4)-2 and 206(4)-7 thereunder and Rule 30(a) of Regulation S-P. Southwind accepted a censure. LaPeruta agreed to limitations on any industry supervisory or compliance activity role within the industry. Southwind and Villafranco agreed to jointly and severally pay a penalty totaling $50,000.

In addition, Southwind agreed to the retention of an independent compliance consultant to conduct a review of Southwind’s policies, procedures, controls, recordkeeping and systems and produce a written and detailed report to Southwind and the Commission. Southwind agreed to adopt all the recommendations in the written reports unless they are unduly burdensome, impractical or inappropriate, in which case Southwind must propose an alterative designed to achieve the same objective or purpose. Southwind also agreed to preserve records of its compliance for six years. Lastly, Southwind agreed to notify all its advisory clients in a letter approved by the Commission that this order was issued and a summary of its contents. In its own press release, the SEC noted the assistance of staff from the New York Regional Office’s investment adviser examination staff.

The release is No. 34-82397.

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