Compliance July 1, 2010

WV Investment Adviser Admits to Embezzling 401(k) Money

A former investment adviser from Charleston, West Virginia, has admitted in federal court that he embezzled $600,000 from a 401(k) plan under his supervision.

 
Reported by

The Charleston Gazette reports that Knox Harwell Fuqua pleaded guilty to misappropriating funds from the 401(k) plan of Community Health Systems Inc. in 2005. Fuqua said that in June 2005, he liquidated $500,000 of the plan’s assets then transferred $600,000 to a bank account opened by him in the company’s name.  

He then used the money to buy two $300,000 certificates of deposit in the name of “Fixed Income Funds, Knox Fuqua-President,” and using the certificates of deposit as collateral, opened a $600,000 line of credit under the name “Fixed Income Fund LLC,” according to the news report. Fuqua admitted that he transferred the $600,000 to the account of another client that wanted to cash out its own investment with Fuqua.  

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

Fuqua’s sentencing is September 28, and he faces up to five years in prison and possible restitution of up to $600,000.  

In 2006, the Securities and Exchange Commission filed a civil lawsuit against Fuqua, alleging that he funneled clients’ funds into an account that he controlled, then siphoned the money to pay for business and personal expenses. Fuqua reportedly used clients’ assets to pay his supermarket, pharmacy and jewelry store bills, and to buy a rental property, purportedly as an investment for his clients, the news report said.  

In 2007, a federal judge issued a consent order barring Fuqua and his company from serving Employee Retirement Income Security Act plans (see West Virginia Adviser Barred from ERISA Work). 
 
 
Compliance July 1, 2010

SEC Adopts Pay to Play Curbs

The Securities and Exchange Commission (SEC) has approved new rules regulating pay to play practices by investment advisers at public pension plans and other government investment accounts. 
Reported by

A news release said the rule includes prohibitions intended to curtail influence over the awarding of investment management mandates because of direct political contributions by investment advisers as well as attempts to exert influence more indirectly.

“The selection of investment advisers to manage public plans should be based on the best interests of the plans and their beneficiaries, not kickbacks and favors,” said SEC Chairman Mary L. Schapiro, in the agency news release “These new rules will help level the playing field, allowing advisers of all sizes to compete for government contracts based on investment skill and quality of service.”

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

According to the agency, the new rule has three key elements:

It prohibits an investment adviser from providing advisory services for compensation — either directly or through a pooled investment vehicle — for two years, if the adviser or certain of its executives or employees make a political contribution to an elected official who can influence the adviser’s selection.

It prohibits an advisory firm and certain executives and employees from soliciting or coordinating campaign contributions from others — a practice referred to as “bundling” — for an elected official who can influence the adviser’s selection. It also prohibits solicitation and coordination of payments to political parties in the state or locality where the adviser is seeking business.

It prohibits an adviser from paying a third party, such as a solicitor or placement agent, to solicit a government client on behalf of the investment adviser, unless that third party is an SEC-registered investment adviser or broker-dealer subject to similar pay to play restrictions.

The SEC announcement said the new rule becomes effective 60 days after its publication in the Federal Register. Compliance with the rule’s provisions generally will be required within six months of the effective date. Compliance with the third-party ban and those provisions applicable to advisers to registered investment companies subject to the rule will be required one year after the effective date, the SEC said.

Pay to play issues have been the subject of federal probes and numerous state investigations around the country in recent years, prompting lawmakers in many states to adopt their own curbs on the practice.

 

«