SEC Charges Investment Adviser with Custody Rule and Compliance Violations
March 30, 2022
File No. 3-20806
March 30, 2022 - The Securities and Exchange Commission today announced settled charges against Connecticut-based registered investment adviser Spruce Investment Advisors, LLC for violating Commission rules designed to safeguard advisory client assets.
Registered investment advisers that have custody of client assets are subject to the "custody rule," which requires an annual surprise examination to verify the existence of assets. In the alternative, an adviser to a private fund may distribute to investors annual audited financial statements for the fund prepared in accordance with Generally Accepted Accounting Principles within 120 days of the fund's fiscal year's end, or within 180 days for a fund of funds. The SEC's order finds that Spruce had custody of assets belonging to certain private funds that it advised, and failed to have required audits performed or to timely deliver audited financials to investors in certain private funds from 2014 forward, and in certain fund of funds from 2018 forward. The order also finds that Spruce failed to adopt written policies and procedures regarding the allocation of expenses to and between certain private funds, and that its policies and procedures regarding the custody rule were not reasonably designed and implemented to prevent violations of the rule.
The SEC's order finds that Spruce violated Section 206(4) of the Investment Advisers Act of 1940 and Rules 206(4)-2 and 206(4)-7 thereunder. Without admitting or denying the order's findings, Spruce consented to a cease-and-desist order and a censure, and agreed to pay a civil money penalty of $75,000. Spruce also agreed to undertakings to provide notice of the SEC's order to past and current investors in the private funds at issue.
The SEC's investigation was conducted by Michael Moran and Robert Baker from the Asset Management Unit in the Boston Regional Office. Also from the Boston Regional Office, Jennifer Moldaver and Michael McGrath, in the SEC's Division of Examinations, and Rory Alex, a staff accountant in the Division of Enforcement, assisted with the investigation.