The U.S. Securities and Exchange Commission (SEC) has settled charges against three investment advisory firms for violating the standards for maintaining custody of their clients’ assets.
The SEC said Monday that the violations came to light through examinations; noting that rules for advisory firms that keep custody of client assets were amended in 2010 to requires that firms must undergo a surprise annual exam to verify the safety of those assets.
The SEC settled allegations that the three firms — Further Lane Asset Management, GW & Wade, and Knelman Asset Management Group — failed to maintain client assets with a qualified custodian, or engage an independent public accountant to conduct surprise exams; along with other alleged violations of federal securities laws.
Each firm agreed to settle the SEC’s charges, without admitting or denying the allegations. In total, they agreed to about US$900,000 in penalties and disgorgement, along with various other corrective measures.
“The heart of the relationship between advisers and their customers is the safety of client assets. Surprise exams or procedures associated with audited financial statements provide additional safeguards against assets being stolen or misused,” said Andrew Ceresney, co-director of the SEC’s division of enforcement. “These firms failed to comply with their custody rule obligations, and other firms who hold client assets should take notice that we will vigorously enforce such requirements.”