SEC Charges Five Advisory Firms for Custody Rule Violations

We continue to see investigations of advisory firms for violations of the Custody Rule, which has specific requirements for the handling and reporting for firms that hold customer funds. The SEC has an extensive FAQ regarding the rule and the requirements for compliance. As always we are available to assist with any SEC inquiry regarding the custody rule. – Mark Astarita

September 5, 2023 — The Securities and Exchange Commission (SEC) today unveiled allegations against five investment counsel companies, citing their failure to adhere to the Custody Rule which addresses the safeguarding of client assets. Furthermore, three of these enterprises face accusations of failing to promptly update their disclosures to the SEC concerning the scrutiny of financial records pertaining to their private investment pool clients. All five advisory entities have consented to settle the SEC’s allegations and have agreed to collectively disburse an excess of $500,000 in penalties.

We continue to see investigations of advisory firms for violations of the Custody Rule, which has specific requirements for the handling and reporting for firms that hold customer funds. The SEC has an extensive FAQ regarding the rule and the requirements for compliance. As always we are available to assist with any SEC inquiry regarding the custody rule. – Mark Astarita

The advisory companies are:

1. Lloyd George Management (HK) Limited
2. Bluestone Capital Management LLC
3. The Eideard Group, LLC
4. Disruptive Technology Advisers LLC
5. Apex Financial Advisors Inc.

According to the SEC, these five entities neglected to execute one or more of the following: perform required audits, deliver audited financial statements to investors in a timely fashion, and ensure that a proficient custodian maintained custody of client assets. Additionally, as outlined in the SEC’s rules and regulations, two of these entities neglected to promptly submit amended Forms ADV to indicate the reception of audited financial statements. Furthermore, one entity failed to accurately describe the status of its financial statement examinations over multiple years while completing its Form ADV submissions.

These advisors consented to the findings, without admitting or denying the allegations, accepted censure, agreed to desist from infringing upon the indicted provisions, and agreed to civil penalties ranging from $50,000 to $225,000.

This marks the second sequence of cases that the Commission has instituted as part of a focused inquiry into breaches of the Investment Advisers Act’s Custody Rule and Form ADV prerequisites by private fund advisors, following its initiation of charges against advisory firms in September 2022.

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