Investment Adviser Settles Charges for Custody Rule Violations
July 17, 2018
File No. 3-18599
Washington, D.C., July 17, 2018 - The Securities and Exchange Commission today announced that New York-based investment advisory firm New Silk Route Advisors LP (NSR) has agreed to settle charges that the firm violated the custody rule each and every year since it registered with the SEC in 2012.
Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-2 thereunder, commonly referred to as the "custody rule," are designed to protect advisory clients from the misuse or misappropriation of their assets. The custody rule requires an adviser who has custody of its client's funds or securities to ensure that such client assets are verified by actual examination each year by an independent public accountant at a time chosen by the accountant without prior notice or announcement to the adviser. The custody rule also provides an alternative to this "surprise examination" requirement for certain advisers if the adviser "distributes its audited financial statements prepared in accordance with generally accepted accounting principles to all limited partners (or members or other beneficial owners) within 120 days of the end of its fiscal year" and the audits are conducted by a PCAOB-registered independent public accountant.
An SEC investigation revealed that NSR, which was not subjected to an annual surprise examination at any time, failed to distribute annual audited financial statements to the limited partners in certain funds it managed within the required timeframes in every year since it registered with the Commission in 2012. The SEC investigation further revealed that, despite missing the audited financial statement distribution deadline each year, NSR failed to adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder.
Without admitting or denying the SEC's findings, NSR agreed to be censured and to cease and desist from committing or causing any violations and future violations of Section 206(4) of the Advisers Act and Rules 206(4)-2 and 206(4)-7 thereunder, and to pay a civil penalty of $75,000.
The SEC's investigation was conducted by David H. Tutor and Valerie A. Szczepanik in the New York office, and supervised by Sanjay Wadhwa. The examination that led to the investigation was conducted by Michael J. Devaney, Erin Foley, Norman von Holtzendorff, Laura Pozo, and William J. Delmage.