Private Fund Sponsor Fined for Failing to Deliver Audited Financials
The SEC fined and censured a private fund manager for failing to deliver audited financial statements to the limited partners within 120 days of the close of the fund’s fiscal years 2014-2018. As required by the custody rule (206(4)-2), the fund sponsor engaged a PCAOB auditor in 2014 and 2015 but delivered the financials nearly 2 years late and 2 ½ years late, respectively. The firm failed to even retain an auditor for the other years. The custody rule requires private fund managers to deliver audited financials rather in lieu of complying with the other elements of the rule including a surprise exam.
The custody rule isn’t that hard for private fund sponsors to follow. The rule is very clear that you have to hire a PCAOB firm to audit the fund and deliver the financials within 120 days of the close of the fiscal period. That date, like Christmas, comes every year at the same time. Begin the planning process right now so that you will have no risk of missing the required deadline and thereby subject your firm to an embarrassing enforcement action that announces to your clients your unwillingness to pay attention to the details.