The Securities and Exchange Commission named Sands Brothers Asset Management LLC (SBAM), an SEC-registered investment adviser, and three of its senior officers—Steven Sands, Martin Sands and Christopher Kelly—in an administrative complaint for not following regulatory requirements related to the holding of client assets for a pool investment vehicle. In general, an adviser who has custody of client assets must (1) ensure that a qualified custodian holds the assets, (2) have a “reasonable belief” that the qualified custodian remits quarterly account statements to clients; and (3) ensure that an independent public accountant annually verifies client funds and securities on a surprise basis. An adviser to a private fund may distribute a financial statement audited by an independent public accountant within 120 days of its fiscal year end in lieu of having the accountant annually verify client funds and securities. The SEC charged SBAM and the senior officers with violations related to not timely providing audited financial statements to investors in SBAM managed funds for fiscal years 2010, 2011 and 2012, and for disregarding the terms of a 2010 SEC order related to similar custody violations. Simultaneously with issuing the administrative complaint, the SEC issued an investor bulletin related to its custodial rule.
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Investment adviser and senior officials charged by SEC with custody rule violations
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