The SEC recently filed an administrative action against an investment adviser, its co-founders and chief compliance officer/chief operating officer in Greenwich, Connecticut for violations of Rule 206(4)-2 of the Advisers Act, otherwise referred to as the Custody Rule. In its complaint, the SEC alleges that the investment adviser failed to timely provide audited financial statements to investors. The complaint also alleges that neither the investment adviser nor its officers took adequate steps to ensure compliance with the Custody Rule. This is the second complaint filed by the SEC against the investment adviser, who previously settled a similar complaint in 2010 asserting violations of the Custody Rule. In the prior action, the investment adviser settled with the SEC for a fine of $60,000. Unlike other recent cases addressed below, the matter involving the Greenwich-based investment adviser is the first case in recent years involving only violations of the Custody Rule and not some other type of alleged fraud or wrongdoing.
In recent years, the SEC has made the Custody Rule a focus of its examination and enforcement efforts and has filed other actions against investment advisers. In April, the SEC filed a complaint alleging fraud and violations of the Custody Rule against an Ohio-based investment adviser and its principal resulting in the permanent bar of the principal. Additionally, earlier this year, a large registered investment adviser/broker-dealer settled a matter with the SEC for a fine of $15 million wherein the SEC had alleged violations of the Custody Rule among other alleged violations of the Investment Advisers Act. Finally, in 2013, three other investment advisers settled administrative actions filed by the SEC alleging violations of the Custody Rule and other wrongdoing for fines and disgorgement ranging from approximately $60,000 to $500,000.