This case involves intentionally overcharging clients for investment management fees. All three characters in this case have violated the CFA Institute Code and Standards. Turrow submitted overbillings to Jameson for management fees that were not earned and billed clients for work that was not performed. The billings are fraudulent and violated multiple standards relating to misconduct [Standard I(D)], breaking the law [Standard I(A): Knowledge of the Law], loyalty to clients [Standard III(A): Loyalty, Prudence, and Care], misrepresentation [Standard I(C): Misrepresentation], and record retention [Standard V(C)].
Evans knowingly or recklessly provided substantial assistance to Turrow by engaging in the fraudulent billing. Turrow is Evans supervisor, and as CEO of the firm, he calculates and prepares the billings each month. But Evans follows Turrow’s direction without question and failed in his responsibilities as CCO to ensure that clients are charged the agreed-on management fees. The obviously inadequate compliance policies and procedures allow Turrow to easily manipulate the fees charged, submit multiple billings, and circumvent the CCO to submit inappropriate supplemental bills to clients. As a result, Evans’s conduct also violated many of the same standards.
The many billing irregularities, particularly multiple billings within a time period, and the request by Turrow to deposit the fees into his personal account should have raised red flags with Jameson about GRP’s inappropriate billing practices. Jameson, as the broker/dealer, has a duty to GRP, his client, to raise these issues of fraudulent and illegal conduct on the part of the CEO with someone at the investment adviser. Furthermore, Jameson failed to dissociate from the fraudulent behavior of Turrow, thereby violating Standard I(A): Knowledge of the Law. Choice C is the best response.
This case is based on a September 2019 US SEC enforcement action.