The SEC censured and fined a private fund manager for failing to timely deliver audited financial statements to limited partners. Since the firm registered in 2012, it did not meet the 120-day deadline required by the custody rule (206(4)-2) with respect to 178 audits of 440 funds, a 40% failure rate. In some cases, no financial statements were ever delivered. The SEC faults the firm for failing to implement required policies and procedures to ensure delivery of the financial statements in accordance with the custody rule even though the firm, for most of the funds, had engaged a PCAOB audit firm to conduct the audits. The SEC also cites violations of the compliance rule (206(4)-7) for failing to conduct annual reviews of the adequacy and effectiveness of the compliance program.
OUR TAKE: Hire a compliance officer – either in-house or through a compliance services firm. These types of regulatory missteps can be easily avoided if you retain a professional that knows the rules and has the responsibility and authority to implement them. If you don’t, you subject your firm to a debilitating and humiliating public enforcement action.