The investment firm agreed to pay a $50,000 fine and take steps to comply with rules; calls violations ''inadvertent.''
Minneapolis investment adviser Feltl & Co. was fined $50,000 Monday by the Securities and Exchange Commission (SEC) and ordered to return $142,000 to some of its advisory customers for failing to maintain adequate compliance and ethics codes at the firm.
The findings were contained in a cease-and-desist order in which Feltl agreed to take the appropriate steps to comply with SEC rules and the Investment Advisers Act. As part of the order, Feltl neither admitted nor denied the findings.
"We think we are all squared away now," said F. Chet Taylor, general counsel for Feltl, who called the regulatory mistake "absolutely inadvertent."
The SEC said Feltl failed to adopt and implement written compliance policies and procedures as its advisory business entered a growth spurt between 2008 and 2011. Feltl also failed to adopt a code of ethics and collect disclosure reports from its staff.
As a result, Feltl engaged in hundreds of transactions without informing its advisory clients and improperly charged undisclosed fees to accounts that paid a wrap, or blanket, fee to cover transactions.
As part of its agreement with the SEC, Feltl also will hire an independent consultant to review compliance operations over the next two years and provide a copy of the SEC's order to past, present and future clients.
With $1.2 billion in assets, the bulk of Feltl's investment work is on the brokerage side. But in 2007, Feltl's investment advisory side began to grow, causing the firm to register as an investment adviser with the SEC and come under the jurisdiction of new regulations.
Taylor said only 5 percent of Feltl's business fell into the advisory category cited by the SEC. He said the brokerage business is commission oriented, while the advisory business is fee driven.
"The SEC expects firms to have an enhanced procedure to govern the advisory business. Once they pointed that out, we began making changes even before the order came out," said Taylor.
Feltl was one of three investment advisers penalized by the SEC Monday as part of an agency program to ensure viable compliance programs are in place. The other two firms are in Utah and Michigan.
"Not all compliance failures result in fraud, but many frauds take root in compliance deficiencies," said Robert Khuzami, director of the SEC's Division of Enforcement.
David Phelps • 612-673-7269