The Securities and Exchange Commission recently announced that it had charged Professional Investment Management, Inc. (PIM), an investment adviser, and its president, Douglas E. Cowgill, with violating rules governing the custody of client funds and overstating client assets by $753,535 for each of the last three months of 2013.
PIM manages approximately $120 million in assets for approximately 325 clients. The firm had custody of client assets through various securities and cash accounts, and therefore was required to comply with the “Custody Rule” under the Investment Advisers Act of 1940, requiring it to employ an independent public accountant who would conduct surprise examinations and to send clients quarterly account statements from a qualified custodian such as a bank or a broker dealer. The SEC has contended that PIM failed to arrange for independent verification of the funds from 2010 through 2013.
The SEC’s complaint alleged that a shortfall of $753,535 in a money market fund account managed by PIM was discovered during its examination of the company. The complaint further alleged that Cowgill entered a fake sale in PIM’s records in an attempt to cover up the shortfall in the money market fund and then later reversed the trade and disguised the transactions in client accounts. According to the SEC, Cowgill also allegedly provided additional falsified reports to the SEC and he later transferred funds from a cash account at another financial institution to try to eliminate the shortfall in the money market fund account.
US District Court Judge Algenon L. Marbley has issued a temporary restraining order against PIM and has frozen client assets following an SEC request for emergency relief for investors. Cowgill has asserted his right against self-incrimination in answering the SEC’s complaint.
SEC v. Douglas E. Cowgill and Professional Investment Management, Inc., Civil Action No. 2:14 CV 396 (S.D. Ohio, May 5, 2014).