## Facts

- Modern Portfolio Management, Inc. (MPM) was an SEC-registered investment adviser based in Ohio, co-owned and managed by G. Thomas Damasco II and Bryan F. Ohm.
- MPM used and recommended mutual funds advised by Dimensional Fund Advisors (DFA) and marketed its services through a website and other materials.
- MPM designated an employee with limited compliance experience as chief compliance officer and assigned compliance oversight tasks, including review of marketing materials.
- A 2008 SEC examination found, among other issues:
  - MPM failed to conduct a required annual compliance review for 2006.
  - MPM’s website made misleading statements implying exclusive access to DFA funds.
  - MPM presented performance information using model results that did not deduct advisory fees and omitted disclosures required by its own policies.
- SEC staff issued a deficiency letter after the 2008 examination; MPM gave assurances of corrective action.
- A 2011 follow-up examination found continuing problems, including failure to conduct an annual compliance review for 2009 and continued misleading DFA-access statements in marketing materials.
- The SEC instituted a settled administrative cease-and-desist proceeding; respondents consented without admitting or denying the findings (except jurisdiction).

## Issues

1. Whether MPM violated Rule 206(4)-7 by failing to implement and conduct required annual reviews of written compliance policies and procedures reasonably designed to prevent Advisers Act violations.
2. Whether MPM’s marketing and performance presentations contained materially misleading statements or omissions, including claims about DFA access and performance figures not reflecting advisory fees.
3. Whether the firm’s principals failed to ensure timely remediation of known deficiencies identified by SEC examinations and staff communications.

## Decision

- The SEC found that MPM, Damasco, and Ohm committed Advisers Act and rules violations involving deficient compliance program implementation and misleading advertising/performance presentations.
- The SEC censured the firm and the principals and ordered them to cease and desist from future violations.
- The SEC imposed civil monetary penalties totaling approximately $175,000 (collectively).
- The SEC required undertakings, including:
  - Compliance training (30 hours) for the principals.
  - Designation of a new chief compliance officer.
  - Retention of an independent compliance consultant for three years to review and improve the compliance program.

## Legal Principles

- Rule 206(4)-7 requires registered advisers to adopt, implement, and review at least annually written compliance policies and procedures reasonably designed to prevent Advisers Act violations.
- An adviser’s compliance program must operate in practice; repeated failure to perform annual reviews, particularly after regulatory notice, supports enforcement for compliance-rule violations.
- Adviser marketing and performance information must not include materially misleading statements or omissions; presenting model performance without deducting advisory fees can be misleading when it overstates investor-realizable returns or lacks clear disclosure.
- Claims suggesting exclusive or special access to investment products are material and must be accurate; inaccurate exclusivity claims in advertising are actionable under Advisers Act anti-fraud provisions.
- Failure to remediate deficiencies identified in an SEC examination and deficiency letter is treated as aggravating and may support findings against the adviser and responsible principals.

## Conclusion

The SEC sanctioned MPM and its principals for repeated failures to perform required annual compliance reviews and for misleading marketing and performance presentations, ordering censure, cease-and-desist relief, monetary penalties, and extensive compliance undertakings to strengthen supervision and controls.


In re Modern Portfolio Mgmt., Inc., Investment Advisers Act Release No. 3702 (Oct. 23, 2013)