Charges Brought Against Adviser for Failing to Disclose an Improper Rebate Arrangement Related to Client Bond Trades

June 9, 2014

The SEC brought an enforcement action against UASNM, Inc., a registered investment adviser, and its former chief executive officer and majority owner, Dennis Malouf, in connection with alleged misconduct with respect to client bond trading.

The SEC found that between 2008 and 2011, Malouf directed UASNM client bond trades to a branch office that he had formerly owned of another broker-dealer (Broker-Dealer). According to the SEC, the new manager of that branch (Branch Manager), and Malouf had entered into a secret oral agreement that Branch Manager would forward to Malouf substantially all of the commissions from UASNM’s bond trading, which amounted to approximately $1.1 million in payments to Malouf between 2008 and 2011. The SEC stated that this commission arrangement, and the resulting material conflict of interest, were not disclosed to UASNM’s clients. In addition, UASNM’s website made statements about impartial investment advice, best execution, and commissions which the SEC said were false or misleading in light of this secret oral agreement. The SEC further found that UASNM, acting through Malouf, failed to seek best execution by directing the vast majority of client bond trades to Broker-Dealer without obtaining competing bids from other broker-dealers. Finally, UASNM failed to adopt and implement reasonable policies relating to best execution and failed reasonably to supervise Malouf with respect to his client bond trading.

Click here to access the administrative action.


Investment Advisers