SEC Charges Southern California Investment Adviser for Custody Rule Violations and Policies and Procedures Failures

ADMINISTRATIVE PROCEEDING
File No. 3-22021

August 19, 2024 - The Securities and Exchange Commission today announced settled charges against California-based investment adviser FPA Real Estate Advisers Group in connection with the adviser's custody practices and failure to implement policies and procedures regarding the use of affiliated service providers.

According to the SEC's order, FPA Real Estate Advisers Group provided investment advisory services to pooled investment vehicle clients concerning real estate investments and had custody of the assets of those clients. The order finds that, from at least October 2019 to November 2022, FPA Real Estate Advisers Group failed to have the funds and securities of seven of those pooled investment vehicles verified by actual examination or, in the alternative, have audits performed of those pooled investment vehicles, and thus audited financial statements were not timely distributed to investors, as required by the custody rule.

In addition, companies affiliated with FPA Real Estate Advisers Group provided property management and construction services for the real estate investments, and the affiliates received fees borne by FPA Real Estate Advisers Group's clients. According to the SEC's order, from October 2019 to November 2022, FPA Real Estate Advisers Group failed to implement its policies and procedures regarding the use of affiliated service providers. Specifically, FPA Real Estate Advisers did not review, on an annual basis, the fees charged by affiliates for property management and construction services to ensure that the fees charged were at or below market rates for similar services.

The SEC's order finds that, as a result of this conduct, FPA Real Estate Advisers Group 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 SEC's findings, FPA Real Estate Advisers Group agreed to a cease-and-desist order and censure. FPA Real Estate Advisers Group will also pay a $300,000 civil penalty.

The SEC's investigation was conducted by Heather C. Gorman and supervised by Spencer E. Bendell of the SEC's Los Angeles Regional Office, with assistance from Dan Faigus, Brian Caravello, and Jennifer Duggins of the Division of Examinations, Private Funds Unit.