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Regulation and Compliance > Federal Regulation > SEC

SEC Charges 5 Advisory Firms With Custody Rule Violations

By Melanie Waddell

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What You Need to Know

  • This is the second set of cases that the SEC has brought as part of a targeted sweep on the custody rule.
  • Three of the firms were also charged with failing to timely update SEC disclosures regarding audits of their private fund clients’ financial statements.
  • All the firms agreed to be censured and to pay civil penalties ranging from $50,000 to $225,000.

The Securities and Exchange Commission said Tuesday that it has charged five investment advisors with failing to comply with requirements related to the safekeeping of client assets, violating the agency’s custody rule.

Three of the firms were also charged with failing to timely update SEC disclosures regarding audits of their private fund clients’ financial statements, the SEC said.

All five advisory firms have agreed to settle the SEC’s charges and to pay more than $500,000 in combined penalties.

The SEC said the advisory firms charged Tuesday are:

This is the second set of cases that the Commission has brought as part of a targeted sweep concerning violations of the Investment Advisers Act’s Custody Rule and Form ADV requirements by private fund advisers.

Last September, the SEC levied actions against registered investment advisors for custody rule and Form ADV violations. Two of the firms violated just the custody rule and one Form ADV, while six of the firms violated both.

According to the SEC’s orders issued Tuesday, the five firms failed to do one or more of the following: have audits performed; deliver audited financials to investors in a timely manner; and/or ensure a qualified custodian maintained client assets.

In addition, two of the firms failed to promptly file amended Forms ADV “to reflect they had received audited financial statements, and one of the firms did not properly describe the status of its financial statement audits for multiple years when filing its Form ADV,” the SEC said.

Andrew Dean, co-chief of the SEC Enforcement Division’s Asset Management Unit, said Tuesday in a statement that the Custody Rule and the associated Form ADV reporting obligations “are core to investor protection. We will continue to ensure that private fund advisers meet their obligations to secure client assets.”

Without admitting or denying the findings, the firms agreed to be censured, to cease and desist from violating the respective charged provisions, and to pay civil penalties ranging from $50,000 to $225,000, the SEC said.

(Image: Shutterstock)

Melanie Waddell

@Think_MelanieW

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