Nine investment advisers failed to follow Securities and Exchange Commission (SEC) rules designed to keep clients’ assets safe and/or timely disclose financial updates following audits, the agency announced Friday.
BiscayneAmericas Advisers, Garrison Investment Group, Janus Henderson Investors, Lend Academy Investments, Polaris Equity Management, QVR, Ridgeview Asset Management Partners, Steward Capital Management, and Titan Fund Management will combine to pay more than $1 million in total penalties as part of separate settlements with the SEC.
Two of the advisory firms—Polaris and Janus Henderson—violated custody rules, one—QVR—failed to comply with Form ADV, and six firms were penalized for violations of both mandates, the agency said. Without admitting or denying the findings, the firms were censured and ordered to cease and desist.
The custody rule, part of the Investment Advisers Act, requires advisers who have custody of clients’ funds or securities follow specific requirements to prevent the loss, misuse, or misappropriation of those assets, according to the SEC.
Some of the advisers to run afoul of the rule did not conduct required audits or failed to disclose the results of audits to investors in a timely manner, the agency said. Some advisers did not promptly file amended Form ADV to the SEC to show they had received audited financial statements after initially telling the agency they had not received them, the SEC continued. One adviser “did not properly describe the status of its financial statement audits” on its Form ADV and did not update its annual amendment to the form for multiple years, the SEC said.
“Noncompliance with the custody rule creates significant risks for the safety and security of client assets,” Gurbir Grewal, director of SEC’s Enforcement Division, said in a press release. “These actions show that the commission expects private fund advisers to meet their obligations to secure client assets and will pursue those who fail to do so.”
The SEC took the unusual step of promptly resolving its investigations with the advisers, Grewal added. “Counsel should not assume that the division will recommend similar resolutions going forward,” he said.
Of the investment firms, Garrison will pay the largest penalty at $330,000.
In 2018 and 2019, Garrison failed to distribute in a timely manner to its clients the annual audited financial statements of some of the relevant private funds it was managing, according to the SEC’s order. Garrison did not promptly update its Forms ADV following audits, instead waiting 11 months, the agency said. The firm also failed to comply with the custody rule in 2020 and 2021, the SEC alleged.
Garrison could not be reached for comment.
Janus Henderson had the second-largest penalty of the group at $150,000. The SEC found the firm didn’t send audited financial statements to about 10 percent of investors in one private fund over a three-year period, according to a Janus Henderson spokesperson.
“Fewer than 20 institutional clients were affected,” the spokesperson said in an emailed statement. The firm has added oversight to prevent “future delays in the distribution of statements” and cooperated fully with the SEC, the spokesperson added.