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RIA Settles SEC Charges for Violations of Advisers Act and Custody Rule

RIA Settles SEC Charges for Violations of Advisers Act and Custody Rule


On July 17th, 2017, the Securities and Exchange Commission (SEC) released its final charges against a registered investment adviser for violations of the Investment Advisers Act of 1940 (the “Advisers Act”) and Custody Rule.

According to the SEC, the adviser failed to “adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act.”  Under Section 203 of the Advisers Act, advisers cannot provide investment advice unless, (1) a chief compliance officer is designated; (2) an annual review is conducted; and (3) a set of policies and procedures (typically known as the Compliance Manual and Code of Ethics) has been adopted.

In addition, the SEC claims that the adviser failed to comply with the Custody Rule as it failed to deliver audited financial statements as required for its two managed private funds.  Rule 206(4)-2, also known as the “Custody Rule,” requires registered investment advisers to maintain surprise examinations for client funds over which the adviser has custody.  Advisers to private funds may elect to comply with the Custody Rule by distributing annual audited financial statements to their fund investors within 120 days of the fiscal year end, in lieu of the surprise custody audit.

The SEC ordered the adviser to cease and desist, to be censured, and pay a civil money penalty of $75,000.


The charged adviser took remedial action by revising its compliance policies and procedures with legal counsel.  The remedies included provisions to prevent further violations of the Custody Rule.

If you have any questions about the requirements of the Advisers Act or the Custody Rule, please reach out to Fairview directly.  Fairview is committed to ensuring its clients compliance programs are robust and compatible to SEC regulations.