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News August 13, 2012 Issue

Mutual Fund Adviser Charged With Document Production Failures

When it costs the SEC, itís likely going to cost you.

Recently, the SEC has taken issue with a Florida-based asset manager that was all talk and no action in producing mutual fund documents to the SEC during an examination.

Not in an "itís going to take us a while to get that" fashion, but in a "weíre going to get that for you" way, but without ever doing so.

The SEC charged that the adviser "failed to live up to his regulatory obligations and turn over the records," said Bruce Karpati, chief of the Division of Enforcementís specialized Asset Management Unit. "When financial professionals fail to cooperate with SEC exams, they force the agency to expend greater resources to pursue investigations," he said.

The adviser, Peak Wealth Opportunities, and its sole owner, David Dube, had run into information production problems before.

In March 2010 the adviserís initial two-year advisory contract was up. The adviser had agreed to waive fees, and was actually in a position of owing money to the fund, which had gone unpaid for a period of time. The board wanted information, and the board wanted answers.

The fundís own portfolio manager, an employee of Peak and Dube, escalated concerns about the lack of information he was receiving and Dubeís failure to respond to "multiple letters and emails" regarding the fundís compliance obligations.

Not surprisingly, the board fired Peak and Dube shortly thereafter.

When the SEC came calling in April 2010, it was more than patient. The staff made more than seven requests for documents and information. "Dube and Peak Wealth did not produce these financial records because they did not exist," said the SECís order instituting procedings against the firm and Dube. Dube even committed directly to the staff to create requested financial records.

The SEC has ordered a hearing to explore the charges further.

Peak Wealth may represent an extreme example, but it does provide the opportunity to revisit some of the finer points of give and take in an SEC exam situation.

Flow documents to the staff.

If information is difficult to assemble, provide it as you obtain it.

Keep open lines of communication with the staff about your efforts and production timing.

Do not overpromise either the amount of information you can deliver or how fast you can deliver it, but meet the production pledges you make.

Keep copies of what you produce and when you produce it. It will help you monitor production of all requested documents.