The Securities and Exchange Commission (SEC) announced penalties against five investment advisers as part of its second targeted sweep regarding violations of its custody rule and Form ADV requirements.
The firms, each agreeing to pay fines ranging from $50,000 to $225,000, were accused of failing to comply with requirements related to the safekeeping of client assets, according to an SEC press release Tuesday. Three of the firms were cited for disclosure failures regarding audits of their private fund clients’ financial statements.
The custody rule, part of the Investment Advisers Act, requires advisers who have custody of clients’ funds or securities to follow specific requirements to prevent the loss, misuse, or misappropriation of those assets. The SEC in February proposed amendments to the rule that would require registered investment advisers to place nearly any asset, not just cash and securities, with qualified custodians.
Penalties assessed Tuesday were as follows:
- Disruptive Technology Advisers: $225,000
- Apex Financial Advisers: $130,000
- The Eideard Group: $80,000
- Bluestone Capital Management: $75,000
- Lloyd George Management (HK) Limited: $50,000
In the case of Disruptive, the Texas-based firm failed to maintain securities of certain private equity funds it advised with a qualified custodian and failed to conduct or timely distribute annual audited financial statements to investors in certain private funds it advised, according to the SEC’s order. Disruptive was also accused of failing to amend information in Form ADV concerning private fund audits.
Disruptive did not respond to a request for comment.
Apex and Bluestone were the other firms cited for similar Form ADV deficiencies.
All five firms agreed to settle with the SEC without admitting or denying the agency’s findings.
The SEC in September 2022 announced penalties against nine firms for custody rule violations as part of its first such sweep.