SEC Fines RIA for Custody Rule Violations

In addition, from at least 2019, in its advisory agreements and certain private fund partnership and operating agreements, “ClearPath used hedge clauses that contained misleading statements regarding the scope of its unwaivable fiduciary duty and could lead a client to believe incorrectly that the client had waived a non-waivable cause of action against the adviser provided by state or federal law.”

The SEC “remains focused on the custody rule, which is vital to investor protection,” said Andrew Dean, co-chief of the SEC Enforcement Division’s Asset Management Unit, in a statement. “In addition, all advisers, including private fund advisers, should be mindful about including hedge clauses in agreements. Even for private fund advisers, in certain circumstances, such clauses could be misleading.”

Without admitting or denying the SEC’s findings, ClearPath agreed to a censure, to cease and desist from further violations of the charged provisions, and to pay a $65,000 civil penalty.