Compliance Solutions for Investment Advisers

Soft Dollar Violations

Back to the SEC administrative action against J.S. Oliver Capital Management and its President, Ian Mausner. Not only were they involved in a Cherry-Picking scheme (see my January 28, 2015 post), but the SEC has alleged that they also misused soft dollars. The SEC also charged Douglas F. Drennan, a portfolio manager at J.S. Oliver, for his role in the soft dollar scheme.

[Soft dollars are credits or rebates from a brokerage firm on commissions paid by clients for trades executed in the investment adviser’s client accounts. If appropriately disclosed, an investment adviser may retain the soft dollar credits to pay for expenses, including a limited category of brokerage and research services that benefit clients.]

According to the SEC’s order, Mausner and J.S. Oliver failed to disclose the following uses of soft dollars:

  • More than $300,000 that Mausner owed his ex-wife under their divorce agreement.
  • More than $300,000 in “rent” for J.S. Oliver to conduct business at Mausner’s home.  Most of this amount was funneled to Mausner’s personal bank account.
  • Approximately $480,000 to Drennan’s company for outside research and analysis when in reality Drennan was an employee at J.S. Oliver.
  • Nearly $40,000 in maintenance and other fees on Mausner’s personal timeshare in New York City.

According to the SEC’s order, Drennan participated in the soft dollar scheme by submitting false information to support the misuse of soft dollar credits and approving some of the soft dollar payments to his own company.

 

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