Doug Cornelius on compliance for private equity real estate
ECM had investment advisory clients and managed two private funds in which some of its advisory clients invested. Based on the SEC order it looks like ECM tripped over the complexities of the Custody Rule in managing the investments. An investment adviser has custody of client assets if it holds, directly or indirectly, client funds … Read more »
Earlier this year, the SEC’s Division of Examinations published its priorities for 2022. There was a significant focus area on private funds. In particular, looking at: “compliance with the Advisers Act Custody Rule, including the “audit exception” to the surprise examination requirement and related reporting and updating of Form ADV regarding the audit and auditors … Read more »
The basic premise of the Custody Rule is that registered investment advisers who have custody ofclient assets must implement specific safekeeping requirements to prevent loss, misuse, or misappropriation of those assets. (Rule 206(4)-2) For non-fund managers, there is a surprise exam requirement. For fund managers, the usual route is through audited financial statements. The Custody … Read more »
Redwood Wealth got into trouble with the Securities and Exchange Commission for missing the custody compliance issues related to an investment program. Redwood Wealth had some of its advisory clients invest in an affiliated mortgage company. Obviously, there are some disclosure items. Presumably, Redwood Wealth took take of that adequately. The investment was structured as … Read more »
The Securities and Exchange Commission’s Division of Examination has been visiting firms that have been involved in digital assets. The Division published a Risk Alert that you should read if your firm has digital assets in client accounts. Right off the bat, the risk alert hedges on its definition of “digital assets” to say that … Read more »
Advisers to private funds, usually rely on the audited financial statement method to satisfy the Custody Rule. The Chief Accountant’s Office of the Division of Investment Management released a “Dear CFO Letter” last week that raises issues about using combined financial statements to satisfy the custody rule. You may have missed this possibly important compliance change … Read more »
The vast majority of private funds use the audited financial statements alternative for compliance with the Custody Rule. Fund managers have custody of the fund assets. Fund investors typically demand audited financial statements from their fund managers. So the audited financial statement work well with the Custody Rule and provides some third-party verification that the … Read more »
The Custody Rule is full of foot-faults. The concept is easy: have a third party make sure that the investment adviser is not stealing money. That turns out to be a bit harder in execution. Mohlman Asset Management Fund was using the accounting firm Katz, Sapper & Miller, LLP to help with its funds’ financial … Read more »
There has been a problem floating around for custody for investment advisers. Custody agreement between the client and qualified custodian may permit the adviser to do things with the assets in the account that create a custody problem. The Securities and Exchange Commission had been noticing this problem and last February issued a Guidance Update … Read more »
Some of the things that catches my attention with frauds and Ponzi schemes are the steps that the fraudsters will take to cover up the fraud and how they think they will escape from the fraud unscathed. The recent charges against Jeremy Drake caught my attention because of the steps he took. The Securities and Exchange … Read more »