SEC Sanctions Adviser, Executives And CCO For Custody Rule Violation – Again

On November 19, 2015, the SEC sanctioned a registered investment adviser, its two owners, and a former chief compliance officer for violating the Advisers Act "custody rule" after previously settling similar charges and agreeing to "cease and desist" from future violations.  Without admitting or denying the charges, the executives consented to the SEC's findings that they caused and willfully aided and abetted the violations.

The former CCO agreed to pay a $60,000 penalty; two principals of the adviser agreed to a $1 million penalty and a one-year ban from raising money from new or existing investors.

The custody rule is designed to protect investor assets.  Among other things, the rule requires an adviser that has "custody" of client assets to ensure that the custodian sends quarterly account statements to clients and that an independent public accountant verifies the assets in client accounts each year.  Advisers of pooled investment vehicles ("funds") that send