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Fund Administrator Charged/Fined for Causing Client’s Securities Fraud

gatekeeper

 

A private fund administrator agreed to appoint an Independent Compliance Consultant and pay more than $350,000 in disgorgement, fines, and interest to settle charges that it caused its clients’ securities fraud.  The SEC asserts that the respondent “ignored clear indications of fraud” including undisclosed brokerage and bank accounts and unauthorized principal borrowing, about which, the SEC avers, the firm had knowledge but failed to adequately adjust disclosures and reports.  Andrew Ceresney, Director of the SEC’s Division of Enforcement, stressed that “administrators are responsible for ensuring that fund records provide accurate information about the value and existence of fund assets” and that the administrator “failed to live up to its gatekeeper responsibility and essentially enabled the schemes to persist at each of these advisory firms until the SEC stepped in.”

OUR TAKE: Bad clients put significant strain on industry service providers, including regulatory scrutiny.  When the SEC uses the term “gatekeeper,” it implies a duty to keep questionable managers out of the industry.  Otherwise, the service provider will face regulatory action for causing the securities violations.

 

http://www.sec.gov/litigation/admin/2016/ia-4428.pdf

http://www.sec.gov/litigation/admin/2016/ia-4429.pdf