Archive | Custody RSS feed for this section
grim reaper

So Many Wrongs…

I tripped across an enforcement case that was so full of wrong things that I had to re-read it. In one sense, I saw a clever way to exploit an investment feature. On the other hand, the whole investment felt morally wrong, was deceptive and violated at least one important rule under the Investment Advisers […]

Read full story · Comments { 0 }

Broker-Dealer Customer Protection Rule versus Investment Adviser Custody

A recent enforcement case highlighted the stark difference between the custody requirements of a broker-dealer and an investment adviser. Merrill Lynch was smacked with over $400 million in disgorgement and penalties for putting customer assets at risk. Private fund managers and investment advisers are well aware of the limits on the custody. The purpose is […]

Read full story · Comments { 0 }
Arrest, close-up man's hands with money in handcuffs.

Custody Rule Gotcha on PCAOB “Registered and Subject to Regular Inspection”

A friend in the private fund compliance community just came up with another “gotcha” under the Custody Rule. His client used an auditor that was registered with PCAOB, but had not yet been inspected. He thought it was enough to be registered, while waiting for an inspection. An SEC examiner argued that the auditor needed […]

Read full story · Comments { 0 }
Failure stamp over white background. High detail in high resolution.

SEC Brings Charges Against CCO for Custody Failure

Last week at the Coping With Regulatory Failure conference, representatives from Securities and Exchange Commission repeated the SEC’s line that the SEC is not after compliance officers. But yet another case of CCO liability came out and this one kicks the CCO out of the industry and levels a $60,000 fine. The SEC panelists repeated […]

Read full story · Comments { 0 }

A New Exception to the Custody Rule

The Custody Rule can be difficult for private equity and real estate fund managers to navigate. When I see some regulatory relief or clarification I hope for the best. 16th Amendment Advisors received relief for one of its funds based its particular circumstance Could that relief may be useful for other fund managers? That’s not […]

Read full story · Comments { 0 }

More on the SEC and Funds’ REIT Subsidiaries

I discovered some additional information about the SEC’s position on the application of the Custody Rule to the REIT subsidiaries of private real estate funds. A few months ago, a real estate fund was undergoing an SEC exam and the examiners focused on custody. The examiners used the June 2014 Guidance on SPVs to take […]

Read full story · Comments { 0 }
reit stock certificate

SEC Demanding Audited Financial Statements for Funds’ REIT Subsidiaries

The Custody Rule is a well intentioned beast of regulation designed to prevent investment advisers from stealing money from their clients. The Rule works well for retail investment advisers and most hedge funds. It starts falling apart for private equity funds and real estate funds. The Securities and Exchange Commission tried providing some additional guidance […]

Read full story · Comments { 0 }

Custody Rule Enforcement

The Securities and Exchange Commission has been pointing out custody issues for investment advisers, made it an exam priority for 2014, highlighted in its presence exam initiative, and highlighted it in its never before examined initiative. So it should come as no surprise that the SEC brought an enforcement case solely for custody rule violations. […]

Read full story · Comments { 1 }
walt-disney-company-stock certificate

New Guidance on the Custody Rule for SPVs and Escrows

The Securities and Exchange Commission’s Division of Investment Management recently released updated guidance on the Custody Rule. Private funds, especially private equity funds, have been wrestling with the SEC’s Custody Rule. The rule clearly comes from the perspective of regulating retail investment advisers and hedge funds. It fails to deali n a useful manner with […]

Read full story · Comments { 0 }

SEC Sanctions CCO for Custody Rule Violations

The Securities and Exchange Commission issued an order against Mark M. Wayne, the president, Chief Executive Officer, and Chief Compliance Officer of Freedom One Investment Advisors, Inc. for violations of the the custody rule under the Investment Advisers Act. Although that’s the headline, the SEC action shows many other compliance failures. First, the custody issues. […]

Read full story · Comments { 0 }