“Recidivist” Custody Rule Violators Settle SEC Charges
The SEC announced that an investment advisory firm, two owners, and a former chief compliance officer have agreed to settle charges that the firm again violated the custody rule after being reprimanded for violations only a few years before.
Sands Brothers Asset Management LLC and the two owners agreed to pay a $1 million penalty and will be suspended for a year from raising money from new or existing investors. They also must have a compliance monitor for three years.
The custody rule requires firms to obtain independent verification of assets when they can access or control client money or securities so investors know they are protected from misuse or theft. Sands Brothers and its two owners first landed in the SEC’s crosshairs in 2010 when they were subjects of an enforcement action for custody rule violations and agreed to settle the charges by paying a $60,000 penalty. They faced new charges in an administrative proceeding instituted in October 2014 when the SEC Enforcement Division alleged the firm was repeatedly late in providing investors with audited financial statements of its private funds.
“There is no place for recidivism in the securities markets,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office. The owners “missed their opportunity to right a previous wrong and instead merely repeated their custody rule violations, so now they face more severe consequences.”
The defendants did not admit or deny the SEC’s charges.
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