SEC Hits 9 RIAs With Custody, Form ADV Violations

Jim Lundy, a partner and member of the Securities Enforcement & Litigation Practice at Foley & Lardner LLP, told ThinkAdvisor Friday in an email that the enforcement actions “relate primarily to the audit requirements of the custody rule, and some of the allegations against certain firms indicate fairly straightforward failures to be in compliance with this aspect of the custody rule. Further, enforcement will enforce the laws and rules ‘on the books’ while their policy making colleagues in other divisions are engaged in rule making.”

Friday’s actions, Lundy added, “align with the public statements of SEC leaders regarding increasing scrutiny of compliance with the custody rule and the private fund industry more broadly.”

C. Dabney O’Riordan, chief of the SEC Enforcement Division’s Asset Management Unit, added in the statement that “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. 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,” the SEC said.

In particular, private fund advisors 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,’” the SEC states.

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.