SEC Fishing For Compliments : Look At Our New Proactive Regulation of RIAs

November 30, 2011

In anticipation of the institution by the Securities and Exchange Commission ("SEC") of public administrative and cease-and-desist proceedings against OMNI Investment Advisors, Inc. ("OMNI") and Gary R. Beynon ("Beynon") (collectively the "Respondents"), without admitting or denying the findings but consenting to the entry of the Order, the Respondents submitted Offers of Settlement, which the SEC accepted. In the Matter of OMNI Investment Advisors Inc. and GaryR. Beynon, Respondents (ORDER INSTITUTING ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS PURSUANT TO SECTION 15(b)(6) OF THE SECURITIES EXCHANGE ACT OF 1934, SECTIONS 203(e), 203(f) AND 203(k) OF THE INVESTMENT ADVISERS ACT OF 1940, AND SECTION 9(b) OF THE INVESTMENT COMPANY ACT OF 1940, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS AND A CEASE-AND-DESIST ORDER, '34 Act Release No. 65837, '40 Act Release 29873, Administrative Proceeding 3-14643 / November 28, 2011).


OMNI, located in Draper, UT, was incorporated in 1985, registered in 1990 with the SEC as an investment adviser, and solely owned by Beynon.  According to its March 31, 2011 Form ADV, OMNI provided customized discretionary portfolio management services to approximately 190 clients with about $65 Million in assets under management.

  • In 2007, the SEC examined OMNI and issued a deficiency letter noting several issues, including OMNI's failure to conduct an adequate annual review of its compliance program.
  • The minority owner of OMNI remained CCO until September 2008, when he sold his interest to Beynon and left the firm, leaving it with two advisory representatives.  Thereafter, Beynon was the CEO of OMNI and the firm's majority owner.
  • On August 19, 2011, OMNI filed Form ADV-W to withdraw its registration and, following approval, its clients were transferred to a new investment advisory firm registered with the state of Utah.

Beynon, age 56, Salt Lake City, UT, holds Series 7, 22, 24, 27, and 63 licenses.

  • In June 2008, Beynon embarked upon a three-year religious mission in Brazil.
  • Between September 2008 and August 2011, Beynon earned approximately $12,800 from his ownership of OMNI. Beynon wanted to keep OMNI in business while he was in Brazil so he could return to the firm when his three year religious mission ended.
  • During the relevant time, Beynon was the sole owner and CEO of OMNI and functioned as its Chief Compliance Officer (CCO). Also, Beynon held ownership positions and associations with OMNI Brokerage, Inc. and Orchard Securities, LLC.  
  • Beynon had a prior disciplinary history relating to his supervisory responsibilities.

No See CCO

In November 2010, the SEC began an examination of OMNI and attempted to contact the CCO designated on the firm's Form ADV; however, examiners learned that following the sale of his minority ownership to Beynon in September 2008, the CCO had left the firm.

The absence of the designated CCO was not merely a technical concern because Beynon was located in Brazil from 2008 through 2011,  during which time Omni's Compliance Manual (dated November 3, 2010) named him as the firm's CCO and assigned all supervisory responsibilities to him.  

Let's not make too much out of Beynon's missing-in-action status because OMNI apparently only had two advisory representatives.  Still, it's going to be a tad difficult to discharge your compliance duties when you're off somewhere in Brazil for three years on a religious mission.

The SEC was apparently not in any mood to give Beynon some benefit of the doubt or some fudge points for his noble motives in going abroad.  The Order asserts that he failed to perform any supervisory or compliance activities between November 2010 and August 2011, other than requiring that the two advisory representatives acknowledge receipt of the latest version of the firm's Compliance Manual.

On the other hand, just making sure that your two advisers got the current manual isn't what's envisioned in the scheme of RIA compliance. Here, the SEC believed that no one at OMNI ensured that the provisions of the Compliance Manual relating to supervision were implemented.  Beynon was not ensuring that the firm's policies and procedures were being enforced or followed, as a CCO is obligated to do.

SIDE BAR: The SEC isn't necessarily stating in this case that you can't be off-site and do the job of a CCO.  Frankly, it may well be that with a firm as limited as OMNI, that Beynon might have been able to pull it off.  Unfortunately, the SEC didn't think he gave his obligations much, if any, attention; to the contrary, the Order asserts that Beynon did nothing more than have the two advisors affirm their receipt of a manual.

It's Around Here, Somewhere - Hopefully

At the outset of the SEC's examination, OMNI initially advised the staff that it was unable to provide any compliance manual adopted/implemented prior to November 3, 2010.  Amazingly, the following day, the firm provided a manual dated November 3, 2010, which the SEC characterized as an off-the-shelf effort that included language from both broker-dealer and investment adviser regulations, and was not specifically tailored to OMNI's business.  Also, OMNI unable to provide any policies and procedures that would have been in effect prior to November 3, 2010.

SIDE BAR:  Oddly, OMNI gets credit for something here.  Some firms might have been tempted to produce a back-dated Compliance Manual, pretending that it had been in force during the relevant time.  Here, OMIN simply produced something that would be used going forward but there was no pretense that it had been in existence prior to the date of its production.  Had OMNI opted for the quick and dirty fix of back-dating a fabricated manual, I suspect that the terms on which this matter settled would have been far more severe.


In May 2011, the SEC issued a subpoena to OMNI for documents relating to Beynon's work as CCO from November 2010 through May 2011. OMNI provided, among other materials, numerous new client advisory agreements which contained Beynon's signature, represented as having been affixed on various dates between November 2010 and May 2011. As a supervisor, Beynon was required to approve these new agreements and his signature was required to document that approval; however, the SEC discovered that Beynon had backdated his signature on the new client advisory agreements after they had been subpoenaed. 

SIDE BAR: You know all the gold stars that OMNI got for not back-dating the November 3rd version of its Compliance Manual? Well, how about we just erase those - and I'm not thinking that the SEC is simply going to call the one good deed and one bad deed here a wash.  

The customer agreements that OMNI produced in response to the subpoena generally showed Beynon's signature date as occurring a few days after the advisory representative's signature was affixed; however, the Order asserts that Beynon had actually signed all of the agreements one day before the documents were produced.  Further, Beynon did not review the agreements before signing each contract, but, instead, the Order asserts that he simply signed a collection of signature pages for all of the agreements.

No Nuthin', Nada, Zippo, Zilch

The SEC determined that at the time Beynon was living in Brazil on a religious mission, he "failed to perform virtually any compliance responsibilities after taking on the role of CCO."  In even more stark and damning language, the Order concluded that:

OMNI had no compliance program in place between September 2008 and November 2010, and OMNI's advisory representatives were completely unsupervised during that period of time. Moreover, no person was functioning as OMNI's CCO between September 2008 and November 2010. Finally, OMNI never conducted an annual review of its written compliance policies and procedures during this time period. OMNI also failed to enforce its code of ethics because its CCO never performed numerous functions, including reviewing access persons' financial reports, assessing whether access persons are following required internal procedures, and evaluating transactions to identify any prohibited practices.

As a result of the conduct described above, the Order concluded that OMNI willfully violated  the Advisers Act, and that Beynon willfully aided and abetted and caused the firm's violations.

Pursuant to its Offer of Settlement, Omni agreed (and will cause Beynon to comply) to provide a copy of the Order with an acceptable cover letter to each of its advisory clients that existed at any time between September 2008 and August 2011.

Accordingly, OMNI and Beynon are ordered to cease and desist from committing or causing any violations and future violations of the Advisers Act and are both censured.

Beynon is barred barred from association in a compliance capacity and a supervisory capacity with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and is prohibited from serving or acting as an employee, officer, director, member of an advisory board, investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor or principal underwriter. Also, he will pay a $50,000 civil money penalty.

Bill Singer's Comment

On November 28, 2011, the SEC trumpeted its recent policing of the investment advisory arena by issuing a press release: "SEC Penalizes Investment Advisers for Compliance Failures." In this somewhat self-serving and self- promotional public relations effort, the SEC seeks credit for charging three investment advisers for failing to put in place compliance procedures designed to prevent securities law violations.

Okay, that's all true and it's nice to see that the SEC wants some credit for doing its job.  Sure, I understand, the accolades for Wall Street's federal regulator have been few and far between in recent years.  It's not like the SEC has been ahead of the wave of Wall Street fraud and crime - more like it's been leisurely paddling around in the surf.  You know, you're right, that's a bit harsh but it's a reaction to the insatiable need for federal agencies to boast about merely doing the job that they're paid to do.

For example, I find this language in the press release to be particularly annoying:

The cases stem from an initiative within the SEC Enforcement Division's Asset Management Unit to proactively prevent investor harm by working closely with agency examiners to ensure that viable compliance programs are in place at firms . . .

Proactively prevent investor harm by working closely with agency examiners???  That's something to crow about? We have one group of folks at the SEC looking to be complimented because they're finally "working closely" with the organization's examiners?  Well, gee, ain't tht grand!  The right hand is finally trying to figure out what the left hand is doing. How wonderful that someone took the "initiative" to coordinate the protection of the public at the SEC.  Where do you want me to pin the medal?

Even more exacerbating is the dubious characterization that the SEC is now working to proactively prevent investor harm.  Let's take a look at what the SEC spins as proactive.

In the OMNI/Beynon matter, we learn that from 2008 through 2011, Beynon - his firm's CCO - was in Brazil on a religious mission and not doing his job as a supervisor.  Let me underscore that: 2008, 2009, 2010, and 2011.  Also, in case the SEC would like to gloss over it, as a result of the regulator's 2007 examination of OMNI, it issued a deficiency letter.  It's not like the SEC thought everything was compliance perfect at OMNI in 2007.  Anyone set up a tickler back at headquarters?

Let's try to fit this into the "proactive" hole.  The SEC issued a deficiency letter to OMNI for 2007 shortcomings. From 2008 to 2011, OMNI's CCO was in Brazil not doing his job and the firm apparently lacked a current compliance manual.  Despite all of that, it doesn't appear that the SEC did any follow-up at OMNI until the November 2010 examination. Not exactly what I would call proactive protection of the public. 

I mean, you know, it's one thing to say that you were duped by a Madoff or never realized that an MF Global could misplace so many dollars - however, here, in 2009 or 2010, a knock on OMNI's door, an email, a phone call would likely have raised a number of red flags.  Once again, we are presented with the moral hazard of giving the public the false, the very false, impression that this nation's three layers of securities industry regulation (SEC, the states, and FINRA) are getting the job done.

And, please, let's not even suggest that there's anything remotely proactive going on.

Of course, I can just hear it all.  That regurgitating chorus. We don't have enough staff. We don't have enough funding. You also don't seem to have a particularly competent management team that is capable of triaging the caseload; however, yes, I'll give you the fact that they are quite good at issuing press releases.

In Omni/Beynon the SEC seems to contend that compliance manuals are critical components in the compliance regime.  If that's true, maybe the SEC should allocate staff to confirm that these critical documents are current - rather than feign mock surprise in 2010 when you walk into examine a firm that you criticized in 2007 and learn that it lacks a current compliance manual.  Not my sense of "proactive."