Asset Custody News | SEC accuses investment advisers of custodial rule violations


The Securities and Exchange Commission (SEC) has announced charges against a number of investment advisers who failed to comply with requirements relating to the safekeeping of client assets.

Investment advisers have also been accused of failing to provide timely updates to their filings with the SEC to reflect the status of audits of the financial statements of the private funds they have advised.

The advisers, who have all agreed to settle the SEC charges and pay combined penalties of more than US$1 million, are BiscayneAmericas Advisers, Garrison Investment Group and Janus Henderson Investors US.

Other embedded investment advisers charged to the SEC include Lend Academy Investments, Polaris Equity Management, QVR, Ridgeview Asset Management Partners, Steward Capital Management and Titan Fund Management.

Without admitting or denying the findings, the companies agreed to be censured, to cease and desist from violating their respective provisions, and to pay civil penalties, collectively totaling more than $1 million.

According to SEC orders, some advisers failed to have audits performed or provide audited financial statements to investors of certain private funds in a timely manner, violating the custody rule of the Investment Advisers Act.

Some advisers did not promptly file the amended Form ADV to indicate that they had received audited financial statements after initially reporting that they had not yet received the audit reports.

Form ADV is the uniform form used by investment advisers to register with the SEC and state securities authorities.

In addition, an advisor did not properly describe the status of his financial statement audits when filing his Form ADV, nor did he update his response in his Form ADV annual update amendment for multiple years.

Gurbir Grewal, Director of the SEC’s Enforcement Division, said, “Failure to comply with the custody rule creates significant risks to the safety and security of client assets. These actions show that the commission expects private fund advisers to meet their obligations to secure client assets and will sue those who fail to do so.

“These cases also presented a unique circumstance to quickly resolve our investigations with this group of advisers. Counsel should not assume that the Division will recommend similar resolutions in the future.

C. Dabney O’Riordan, Head of the Asset Management Unit of the SEC’s Enforcement Division, comments: “The failure of registered private fund advisers to meet their reporting obligations makes more difficult for the SEC to identify companies with possible ongoing issues with the custody rule. It is essential for investor protection that private fund advisers update their filings with the SEC as needed.

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