The SEC brought an enforcement action against Horter Investment Management, LLC and Drew K. Horter for failing reasonably to supervise Kimm Hannan, an Investment Adviser Representative (IAR) with Horter Investment. The SEC found that from at least November 2015 through at least March 2017, Hannan misappropriated $728,001 from Horter Investment clients purportedly for his outside business activities, but instead he used those funds to gamble, pay personal expenses, and repay other investors.
The SEC noted that Horter Investment’s overall supervisory structure was inadequate to reasonably supervise its IARs generally and Hannan specifically. According to the SEC, Horter Investment failed to establish supervisory policies and procedures and failed to follow those policies and procedures it had in place. Horter Investment also failed reasonably to follow up on red flags. Similarly, the SEC noted that Horter, who had overall supervisory responsibility for Horter Investment, failed to follow specific policies and procedures, failed reasonably to supervise Hannan, made open-ended delegations of supervisory responsibility without following up, and failed reasonably to follow up on red flags.