Private Fund Compliance Failures Bring SEC Charges for RIA
SEC Releases
Brief Introduction
A New York RIA was charged $275,000 by the SEC on May 24th for Compliance failures related to their valuation of Private Funds.
In addition to the penalties, the Firm also consented to a cease-and-desist order, censure, and will be required to hire an independent compliance consultant.
What Was Discovered?
Per the SEC:
- The Firm’s Private Funds frequently invested in securities that provided limited available market pricing or significant observable inputs.
- The RIA charged management fees on a quarterly basis based on the firm’s calculation of NAV.
- Since 2016, the RIA did not have any policies and procedures designed to reasonably assist staff in the calculation of NAV.
- Minimal guidance was provided for complying with Generally Accepted Accounting Principles (“GAAP”) and other industry standards.
- The Compliance Manual provided no methodologies or any valuation techniques specific to the level of investments used in the majority of the Private Funds.
Vigilant’s Conclusion
Private Funds continue to be a high focus area by the SEC’s Division of Examinations.
Writing proper policies and procedures that are applicable and tailored to a Firm’s business model is crucial. Policies and procedures should also be implemented, and proper supervision should be demonstrated.
“Reasonably designed” is a standard that can be difficult to meet without experience and deep industry insight.
Vigilant offers a variety of compliance solutions; if your compliance department needs support or an evaluation of your compliance policies and procedures, please contact us.