SEC Charges Investment Adviser for Failing to Disclose Conflicts of Interest and Comply with the Custody Rule

ADMINISTRATIVE PROCEEDING
File No. 3-22148

September 20, 2024 - The Securities and Exchange Commission today announced settled charges against registered investment advisory firm Closed Loop Partners, LLC, based in Manhattan, for failing to properly disclose and gain consent for certain client loan transactions involving conflicts of interest and for failing to deliver required audited financial statements to private fund investors in a timely manner. Closed Loop was also charged with violating rules relating to compliance policies and procedures.

According to the SEC's order, Closed Loop breached its fiduciary duty and violated Section 206(2) of the Investment Advisers Act of 1940 by not disclosing conflicts of interest presented by three loan transactions involving fund clients and not properly obtaining the funds' consent for those transactions. In addition, the order finds that the firm violated Section 206(4) of the Advisers Act and Rule 206(4)-2-the "custody rule"-by failing to deliver to investors within the prescribed time period audited financial statements prepared in accordance with GAAP for five private funds from 2020 through 2022. The SEC's order further finds that Closed Loop failed to adopt and implement written policies and procedures reasonably designed to prevent these kinds of violations of the Advisers Act.

The SEC's order finds that, based on the foregoing, Closed Loop willfully violated Sections 206(2) and 206(4) of the Advisers Act and Rules 206(4)-2 and 206(4)-7. Without admitting or denying the findings, Closed Loop consented to a cease-and-desist order and a censure and agreed to pay a $250,000 penalty.

The SEC's investigation was conducted by Austin Thompson, Alison R. Levine, and George N. Stepaniuk of the New York Regional Office, and was supervised by Tejal D. Shah. The examination that led to the investigation was conducted by Arjuman Sultana, Majid S. Mahmood, and Beth Abraham.