SEC sanctions investment firms for custody violations
06 November 2013 Washington D.C.
Image: Shutterstock
The Securities and Exchange Commission (SEC) has sanctioned three investment advisory firms for violating a custody rule that requires them to meet certain standards when maintaining custody of their client’s funds or securities.
SEC investigations following referrals by agency examiners found that New York-based Further Lane Asset Management, Massachusetts-based GW & Wade and Minneapolis-based Knelman Asset Management Group failed to maintain client assets with a qualified custodian or engage an independent public accountant to conduct surprise exams.
Andrew Ceresney, co-director of the division of enforcement, said: “The heart of the relationship between advisers and their customers is the safety of client assets. Surprise exams or procedures associated with audited financial statements provide additional safeguards against assets being stolen or misused.”
“These firms failed to comply with their custody rule obligations, and other firms who hold client assets should take notice that we will vigorously enforce such requirements.”
According to the SEC’s order against GW & Wade, the firm was subject to the custody rule in part due to its practice of using pre-signed letters of authorisation and then transferring client funds without always obtaining contemporaneous client signatures, among other violations of the federal securities laws.
In a statement, GW & Wade said that the company is “committed to upholding the highest ethical and legal standards in the industry”.
“As soon as we discovered there were issues, we responded promptly with actions to address them”
It added: “We also are taking another step required under the terms of the settlement: engaging an independent compliance consultant to conduct a review of our custody arrangements and billing procedures. The consultant will assist us in identifying and implementing additional steps for other enhancements to our compliance programme. We are glad to be putting this matter behind us.”
SEC investigations following referrals by agency examiners found that New York-based Further Lane Asset Management, Massachusetts-based GW & Wade and Minneapolis-based Knelman Asset Management Group failed to maintain client assets with a qualified custodian or engage an independent public accountant to conduct surprise exams.
Andrew Ceresney, co-director of the division of enforcement, said: “The heart of the relationship between advisers and their customers is the safety of client assets. Surprise exams or procedures associated with audited financial statements provide additional safeguards against assets being stolen or misused.”
“These firms failed to comply with their custody rule obligations, and other firms who hold client assets should take notice that we will vigorously enforce such requirements.”
According to the SEC’s order against GW & Wade, the firm was subject to the custody rule in part due to its practice of using pre-signed letters of authorisation and then transferring client funds without always obtaining contemporaneous client signatures, among other violations of the federal securities laws.
In a statement, GW & Wade said that the company is “committed to upholding the highest ethical and legal standards in the industry”.
“As soon as we discovered there were issues, we responded promptly with actions to address them”
It added: “We also are taking another step required under the terms of the settlement: engaging an independent compliance consultant to conduct a review of our custody arrangements and billing procedures. The consultant will assist us in identifying and implementing additional steps for other enhancements to our compliance programme. We are glad to be putting this matter behind us.”
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