Private Equity Firm Failed to Deliver Financials within 120 Days

 The SEC fined and censured a private equity firm for failing to deliver audited financial statements to limited partners within 120 days of the end of the fiscal year, as required by the custody rule (206(4)-2).  The firm missed the deadline by an average of more than 60 days in every year since it registered in 2012.  Although the staff will give a firm a pass if it misses the deadline due to “unforeseeable circumstances,” the SEC faults the PE firm for failing to make material changes to its compliance processes, thereby leading to a violation in 6 consecutive years.

OUR TAKE: We have found the staff to be fairly reasonable if a firm misses the deadline by a few days because of an unusual event such as a hard-to-value security or a change in auditors.  When you consistently ignore a regulatory requirement and fail to make changes, the Enforcement Division will treat you as a regulatory recidivist and proceed accordingly.