Delaware Regulators Fine Kovack Advisors $985,000
From the desk of Jim Eccleston at 蘑菇传媒
Kovack Advisors Inc., the registered investment adviser affiliate of independent broker-dealer Kovack Securities Inc., agreed to pay a $985,000 fine to Delaware securities regulators. According to InvestmentNews, the action follows allegations from the state involving serious failures in disclosure, supervision, and recordkeeping tied to the firm’s attempted hiring of a broker in 2021.
According to a consent order, the Delaware Department of Justice’s Investor Protection Unit found that Kovack Advisors submitted incomplete and inaccurate registration materials when it sought to bring on broker Robert Prettyman. InvestmentNews reports that the filings allegedly failed to disclose a prior investigation into Prettyman’s conduct, including a FINRA investigation that should have appeared in the firm’s regulatory submissions.
Prettyman has faced repeated regulatory action. InvestmentNews’ review of his BrokerCheck report shows that the Investor Protection Unit temporarily barred him from the securities industry in 2021 and again in 2024. He is not currently registered with a FINRA broker-dealer or a registered investment adviser.
Regulators concluded that Kovack Advisors not only filed inaccurate registration forms but also failed to supervise employees and failed to maintain records and documents required by law. The Investor Protection Unit further found that the firm provided inaccurate information in response to regulatory inquiries and did not preserve key documents during the investigation.
The consent order also describes more serious conduct. When regulators questioned Kovack about pre-employment letters that the firm claimed it had sent and retained, the Investor Protection Unit found that Kovack created dozens of letters after the fact, inaccurately labeled each as a “2nd Request,” and placed them into personnel files. Kovack Advisors neither admitted nor denied the state’s findings in resolving the matter.
According to InvestmentNews, the Delaware action adds to a series of recent regulatory settlements involving Kovack entities. In 2022, Kovack Advisors agreed to pay nearly $900,000 to resolve Securities and Exchange Commission charges alleging that the firm failed to monitor wrap fee accounts between 2015 and August 2018 to assess their suitability for clients. InvestmentNews adds that FINRA and Kovack Securities Inc. also reached a settlement that included a $210,000 fine over supervisory failures related to mutual fund A-share transactions, which FINRA treats as long-term investments.
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