A New York-based investment adviser will pay a $90,000 penalty for violating a Securities and Exchange Commission (SEC) rule by failing to obtain “surprise” examinations of advisory client assets.
Arcadia Wealth Management agreed Monday to the fine, a cease-and-desist order, and a censure. As part of a settlement, Arcadia’s chief compliance officer must complete 30 hours of compliance training relating to the Investment Advisers Act within one year.
Arcadia failed to obtain surprise examinations of client funds and securities for which it had custody from 2013-19, in violation of the SEC’s custody rule, according to the agency’s order. The SEC said Arcadia failed to implement policies and procedures to prevent violations of the rule.
According to the custody rule, investment advisers who have custody of client assets must have those assets verified during a surprise examination by an independent accountant at least once a year. Arcadia did not have an independent accountant conduct such reviews until March 2018, five years later than it was supposed to, the SEC said. The 2018 examination failed to comply with the custody rule because the firm did not enter into a written agreement with the accountant about the terms and time frame of the examination; the exam only covered a portion of the assets at issue; and the accountant failed to complete the surprise exam or file the required ADV-E form with the SEC.
The firm did not obtain an acceptable surprise examination until 2020, following the onset of an SEC examination, during which investigators questioned the firm on its compliance with the custody rule, the agency stated.
In a related action, Matthew Dreyer, an accountant of New York, was suspended by the SEC from appearing before the agency as an accountant because it concluded he “lacked integrity and engaged in improper professional conduct” during and after the 2018 examination of Arcadia’s advisory client assets. Dreyer may apply for reinstatement after five years, the SEC said in an administrative proceeding.
Arcadia and Dreyer each agreed to their respective settlements without admitting or denying wrongdoing.
Arcadia did not return a request for comment. On its website, the firm does not list a CCO among its five employees.