Compliance Failures Lead to Firm’s Demise
Compliance deficiencies led to the demise of a private fund manager because of failures to enforce a consistent redemption policy, deliver audited financial statements, and file accurate Form ADVs. According to the SEC, the firm allowed certain clients and insiders the ability to redeem before the stated 90-day redemption policy. The firm also failed to deliver audited financials as required by the custody rule. The SEC also cites the firm for filing inaccurate Form ADVs, including claiming SEC registration eligibility even though the firm had less than $100 Million in assets under management. The SEC attributes the failures to the firm’s deficient compliance program which used a template manual and did not require annual compliance reviews.
OUR TAKE: Failure to implement an adequate compliance program can have real-world implications for the viability of your firm. A tight compliance program will support a more coherent operating environment that will prevent sloppy business practices that will lose clients and attract regulators.