SEC Charges Investment Adviser with Custody Rule and Related Violations
Sept. 8, 2022
FILE NO. 3-21042
September 8, 2022 - The Securities and Exchange Commission today announced settled charges against New York City-based investment advisory firm Charles Pratt & Company, LLC for violating Commission rules designed to protect advisory clients from the misuse or misappropriation of their assets.
According to the SEC's order, Pratt & Co. has been registered with the Commission as an investment adviser since 1984. Registered investment advisers that have custody of client assets are subject to the "custody rule," which requires the advisers to undergo an annual surprise examination to verify the existence of assets or, where permissible, to distribute to investors, within 120 days of each fiscal year's end, annual audited financial statements for the fund prepared in accordance with Generally Accepted Accounting Principles. According to the order, Pratt & Co. failed to timely distribute the required annual audited financial statements for each year from 2010 through 2020 for one private fund that it advised. In addition, for each year from 2010 through 2020, Pratt & Co. failed to obtain the requisite independent verification of client assets from an independent public accountant for discretionary client accounts that it advised. Pratt & Co. also failed to adopt and implement written policies and procedures reasonably designed to prevent custody rule violations.
The SEC's order finds that Pratt & Co. 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, Pratt & Co. consented to a cease-and-desist order and a censure, and agreed to pay a civil penalty of $100,000.
The SEC's investigation was conducted by Christopher M. Castano and George N. Stepaniuk in the New York Regional Office, and supervised by Sheldon L. Pollock. The examination that led to the investigation was conducted by Todd S. Naznitsky, Kristine Geissler, and Anthony P. Fiduccia.
Kevin Rush, Securities Compliance Examiner Azam Riaz, Examination Manager Lisa Blackburn, Regulatory Counsel Raymond Slezak, Assistant Regional Director