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Federated Fined Due to the Oversight of Consultant Ties

Federated Investors, Inc. FII is set to pay a $1.5 million fine to resolve charges of the Securities and Exchange Commission (SEC). The regulator claimed that the Pittsburgh, PA-based investment manager’s subsidiary – Federated Global Investment Management Corp. (FGIMC) – failed to maintain and implement policies and procedures to prevent misuse of confidential information by outside consultants hired by the firm.

According to SEC findings, from 2001 to 2010, FGIMC which is a registered investment adviser to the Federated Kauffman Funds, employed  third-party consultants and research services, including a particular consultant who provided recommendations regarding  pharmaceutical and biotechnology stocks.

The senior management and compliance department of FGMIC were unaware that the concerned consultant had been a board member of four companies whose securities Federated had held and traded. Also, he had access to several confidential information including opinions of FGIMC investment management personnel related to securities that the firm held. Additionally, the consultant at times bought and sold securities of the same companies which Federated owned, in his personal brokerage accounts.

The SEC mentioned, “FGIMC’s written policies and procedures were not reasonably designed to prevent the misuse of material, nonpublic information with respect to outside consultants.”

However, FGMIC ended ties with the consultant in May 2010 following an internal probe. Federated spokesperson, Meghan McAndrew, stated that the company had taken steps to address the issues raised by the SEC before the regulator’s probe. She also added, “There was no finding of any misuse of material nonpublic information.”

Federated neither accepted nor denied the findings of the SEC. However, its agreed to the cease and desist order.

Currently, Federated carries a Zacks Rank #3 (Hold). Some  better-ranked stocks in the finance  space include include OceanFirst Financial Corp. OCFC, KCG Holdings, Inc. KCG and LPL Financial Holdings Inc. LPLA, each sporting a Zacks Rank #1 (Strong Buy).

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KCG HOLDINGS (KCG): Free Stock Analysis Report
 
LPL FINL HLDGS (LPLA): Free Stock Analysis Report
 
FEDERATED INVST (FII): Free Stock Analysis Report
 
OCEANFIRST FINL (OCFC): Free Stock Analysis Report
 
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