Disputes Over Axys Performance Numbers No Excuse For Fudging Client Reports, SEC Says Hot

Michael Pelosi, formerly of Halsey Associates in New Haven, claims that glitches in the firm's Axys accounting system caused discrepancies when it came to reconciling his clients' portfolios with data from Schwab.

He says the errors forced him to "manually calculate returns for legitimate purposes," if, for example, the system returned an N/A or zero on some assets.

Unfortunately for him, the firm's assistants noticed that his client letters didn't match what Axys was telling them were the numbers of record, so they eventually confronted management.

Pelosi was fired, taking many of his clients with him. They seemed happy enough, but the SEC points out that roughly 84% of them thought he was earning them significantly higher results than they were actually getting.

The judge didn't find his justifications convincing -- if anything, the multiple explanations seemed insincere. As a result, he's been banned from the business and fined $60,000.

There's a great lesson in compliance here. Even if the numbers look wrong, keep detailed notes on the apparent errors -- but trust the system until someone takes a look.  

This Website Is For Financial Professionals Only