SEC Charges Five Advisory Firms for Custody Rule Violations

Today, the Securities and Exchange Commission (SEC) has taken action by announcing charges against five investment advisers for their failure to comply with regulations pertaining to the safeguarding of client assets. Additionally, three of these firms have been charged with the untimely updating of SEC disclosures related to audits of financial statements for their private fund clients. All five advisory firms have reached settlements with the SEC and agreed to collectively pay penalties exceeding $500,000.

The advisory firms implicated in this matter are as follows:

1. Lloyd George Management (HK) Limited
2. Bluestone Capital Management LLC
3. The Eideard Group, LLC
4. Disruptive Technology Advisers LLC
5. Apex Financial Advisors Inc.

As per the SEC’s findings, these five firms failed to fulfill one or more of the following obligations: conducting necessary audits, delivering audited financials to investors within the stipulated timeframes, and ensuring that client assets were maintained by a qualified custodian. Furthermore, two of the firms neglected to promptly file revised Forms ADV to reflect the receipt of audited financial statements, while one firm inaccurately described the status of its financial statement audits over multiple years when submitting its Form ADV.

Andrew Dean, Co-Chief of the SEC Enforcement Division’s Asset Management Unit, emphasized the significance of the Custody Rule and associated Form ADV reporting requirements in safeguarding investor interests. He stated, “We will continue to ensure that private fund advisers meet their obligations to secure client assets.”

Without admitting or denying the findings, the implicated firms have agreed to the following actions:

• Accept censure for their actions.
• Cease and desist from violating the specific provisions that they were charged with.
• Pay civil penalties, with amounts ranging from $50,000 to $225,000.

This marks the second series of cases initiated by the Commission as part of a targeted investigation into violations of the Investment Advisers Act’s Custody Rule and Form ADV requirements by private fund advisers. The SEC had previously charged nine advisory firms in September 2022 as part of this initiative.