A private fund sponsor has agreed to settle an enforcement action alleging that its violations of the custody and compliance rules allowed a rogue employee to misappropriate client funds. According to the SEC, the adviser sponsored private funds investing in real estate that produced annual dividends which were to be paid to investors. One of the principals delegated to an “administrative and clerical” employee the task of preparing the dividend checks. The SEC alleges that the clerical employee wrote checks to himself, thereby misappropriating client funds. The SEC charges that the firm had custody of the funds’ assets but violated the compliance rule (206(4)-2) by failing to send quarterly account statements or an annual fund audit to clients. The SEC also charges the firm for failing to conduct an annual review of the firm’s compliance policies and procedures as required by the compliance rule (206(4)-7). To read the full accounting, please click here.
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Red Oak Compliance Solutions is the global advertising review software of choice in the financial services industry. It is a comprehensive suite of SEC 17A-4 compliant features that are 100% books and records compliant and provides clients with 35% faster approvals and 70% fewer touches or better. We also offer Smart Review(SM), which solves for the storage and maintenance of disclosures, helping firms reduce risk, decrease review times, and increase the speed of distribution of marketing materials. Smart Registration(SM) automates the licensing and registration management process to help reduce regulatory risk and time spent on manual processes. Overall, Red Oak allows firms to minimize risk, reduce costs, and increase compliance review process effectiveness and efficiencies.