The SEC charged a NY-based BD and its NY-based IA, and their former CCO, with failing to have adequate policies and procedures to prevent misuse of nonpublic information.  The firms and the CCO agreed to settle with the SEC. 

    The Players.  The broker-dealer and parent company is The Buckingham Research Group Inc. ("BRG" - the B/D).  The investment adviser is The Buckingham Capital Management ("BCM" - the IA), which also is charged with supplementing and altering its records prior to turning them over to SEC examination staff, to cover up its failure to follow compliance procedures.  Both firms are alleged to have failed to establish, maintain, and enforce WSP's to prevent misuse of material, nonpublic information, including forthcoming BRG research reports.  Former Chief Compliance Officer for both firms, Lloyd Karp, was charged with aiding and abetting and causing the failures.

BRG provides equity research to hedge funds, broker-dealers, and other institutional customers, with a primary focus on retail, apparel, and footwear.  BRG and BCM share common office space and management, and BCM's trading accounts for about 25% of BRG's commission revenue. 

    What Went Wrong - Per the SEC.   While preparing for an SEC exam in 2006, BCM discovered that pre-approval forms for over 100 employee trades were missing.  Rather than provide incomplete employee trading records, BCM created new forms to replace the missing ones.  BCM also replaced incomplete compliance logs with newly-created completed logs. 

    Next, whenever there was a material research event, BRG research analysts had to certify in writing that they had maintained confidentiality of the material research information.  In practice, analysts were required to complete a certification form only where a BCM portfolio had traded in the same direction as the research.  Submitted certifications often were lacking, incomplete, or dated long after the research event had occurred.

    Next, until May 2009, BCM (IA) personnel with access to material, nonpublic information were required to report "all business, financial or personal relationships that may result in access to material, non-public information."  However, they only reported those relationships that actually did result in access to material, nonpublic information.  The firm also failed to conduct the required annual review of its policies and procedures for 2005.

    The Settlements.   BRG (B/D, parent) agreed to pay a $50K fine, BCM (IA) a $75K fine, and Karp (CCO) a $35K fine.  Both firms also must engage an independent consultant to review and make recommendations regarding their compliance policies and procedures.

SEC staff credits:  Kara Brockmeyer, Shelley Grant, William Max Hathaway, Thomas Swiers of Enforcement in Washington.   [SEC PR 10-223, 11/17] 

For further details, click onto:   [ Administrative Proceeding 3-14125 ]