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SEC Charges Two Advisory Firms for Custody Rule Violations, One for Form ADV Violations, and Six for Both

SEC Charges Two Advisory Firms for Custody Rule Violations, One for Form ADV Violations, and Six for Both


The Securities and Exchange Commission today announced charges against a number of investment advisers that failed to comply with requirements relating to safekeeping client assets and/or to timely update their SEC disclosures to reflect the status of audits of financial statements for the private funds they advised.

The advisers, all of which agreed to settle the SEC’s charges and pay combined penalties of over $1 million, are BiscayneAmericas Advisers L.L.C., Garrison Investment Group, LP, Janus Henderson Investors US LLC, Lend Academy Investments, LLC, Polaris Equity Management, Inc., QVR, LLC, Ridgeview Asset Management Partners, LLC, Steward Capital Management, Inc., and Titan Fund Management, LLC.

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According to the SEC’s orders, certain advisers failed to have audits performed or to deliver audited financials to investors in certain private funds in a timely manner, thereby violating the Investment Advisers Act’s Custody Rule, and certain advisers failed to promptly file amended Form ADV to reflect they had received audited financial statements after having initially reported that they had not yet received the audit reports. In addition, one adviser did not properly describe the status of its financial statement audits when filing its Form ADV, nor did it update its response in its Form ADV annual updating amendment for multiple years, as required.

“Non-compliance with the Custody Rule creates significant risks for the safety and security of client assets,” said Gurbir S. Grewal, Director of the SEC’s Enforcement Division. “These actions show that the Commission expects private fund advisers to meet their obligations to secure client assets and will pursue those who fail to do so. These matters also presented a unique circumstance for promptly resolving our investigations with this group of advisers.  Counsel should not assume that the Division will recommend similar resolutions going forward.”

“Registered private fund advisers’ failures to fulfill their reporting obligations make it harder for the SEC to identify firms with possible on-going issues regarding the Custody Rule,” said C. Dabney O’Riordan, Chief of the SEC Enforcement Division’s Asset Management Unit.  “It is critical for investor protection that private fund advisers update their filings with the SEC as required.”

Firms are strongly encouraged to ensure their compliance with the Custody Rule and the related Form ADV reporting and amending obligations. In particular, private fund advisers registered with the SEC are reminded that per the instructions to Form ADV, Part 1A, Schedule D, Section 7.B.23.(h), “If you check ‘Report Not Yet Received,’ you must promptly file an amendment to your Form ADV to update your response when the report is available.”

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

The SEC’s targeted sweep of this conduct was conducted by Payam Danialypour, Frank Goodrich, and Manuel Vazquez and supervised by Kimberly Frederick and Gary Leung, all of the Enforcement Division’s Asset Management Unit, with assistance from Chris Mulligan, Dan Faigus, and Keith Kanyan of the SEC’s Division of Examinations.

Source: Securities and Exchange Commission


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