(Article from Registered Funds Regulatory Update, October 2022)
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In a June 2020 administrative proceeding, the SEC held Jeffrey Kirkpatrick, the Chief Compliance Officer and a Principal of Hamilton Investment Counsel, LLC (“HIC”), a registered investment adviser, personally liable for failing to implement certain compliance policies and procedures for outside business activities. According to the Order, Kirkpatrick failed to implement the adviser’s compliance program by inadequately responding to multiple red flags surrounding an investment advisory representative’s (“IAR”) outside business activities.
HIC’s compliance program specifically required that its IARs disclose outside business activities to the adviser. Beginning at least in February 2020, Kirkpatrick became aware that an IAR was conducting outside business activities but, contrary to the adviser’s compliance program, he did not require the IAR to complete and submit a formal report, conduct a sufficient review to determine whether the outside business activity raised any conflicts of interest or take sufficient steps to verify that HIC or the IAR had appropriately disclosed to clients the IAR’s outside business activities and any resulting conflicts. Over the next several months, Kirkpatrick was notified several additional times of the IAR’s outside business activities that indicated that he was in violation of the compliance program. Then in August 2020, Kirpatrick failed to review the legitimacy of certain transactions flagged by the broker-dealer with which the IAR was also associated involving the transfers of client assets to the IAR’s other business. Thereafter, in November 2020, Kirkpatrick learned that the IAR had been using HIC’s office address for an outside business but did not take steps to ensure that the outside business activity was adequately and accurately reported.
According to the SEC, Kirkpatrick had multiple opportunities to cure the compliance failures because the wrongful activity came to his attention in various forms multiple times over a substantial period. Furthermore, the conduct at issue was not merely a technical violation of the compliance program but rather a fundamental failure to effectively implement the adviser’s compliance program to protect clients.
Without admitting or denying the SEC’s findings, HIC and Kirkpatrick agreed to a cease-and-desist order, and civil monetary penalties in the amount of $150,000 and $15,000, respectively. In addition, Kirkpatrick received a five-year bar from acting in a supervisory or compliance capacity with, among others, a broker-dealer or investment advisory firm.
In the Matter of Hamilton Investment Counsel, LLC and Jeffrey Kirkpatrick, SEC Admin. Proc. File No. 3-20920 (June 30, 2022), available at: https://www.sec.gov/litigation/admin/2022/34-95189.pdf.