The U.S. Securities and Exchange Commission (SEC) announced that an investment advisory firm, two owners, and a former chief compliance officer have agreed to settle charges. This is in regards to the allegations that the firm has again violated the custody rule after being reprimanded for violations only a few years before.
Sands Brothers Asset Management and co-founders Martin Sands and Steven Sands agreed to pay a $1 million penalty and will be suspended for a year from raising money from new or existing investors.
At the same time, they also must have a compliance monitor for three years. The former chief compliance officer (CCO) Christopher Kelly, who also served as chief operating officer (COO), agreed to pay a $60,000 penalty and will be suspended for one year from acting as a CCO or appearing or practicing before the SEC as an attorney.
Without admitting or denying the charges, Sands Brothers, Martin Sands and Steven Sands consented to the SEC’s order finding that the firm violated the custody rule and the brothers caused and willfully aided and abetted the violations. Kelly also neither admitted nor denied the charges while consenting to an SEC order finding that he caused and willfully aided and abetted the firm’s custody violations.
For some background on the rule: the custody rule requires firms to obtain independent verification of assets when they can access or control client money or securities so investors know they are protected from misuse or theft. In this case, Sands Brothers and its co-founders first landed in the SEC’s cross-hairs in 2010 when they were subjects of an enforcement action for custody rule violations and agreed to settle the charges by paying a $60,000 penalty. They faced new charges in an administrative proceeding instituted in October 2014 when the SEC Enforcement Division alleged the firm was repeatedly late in providing investors with audited financial statements of its private funds.
Andrew M. Calamari, director of the SEC’s New York Regional Office, said:
There is no place for recidivism in the securities markets. The Sands brothers missed their opportunity to right a previous wrong and instead merely repeated their custody rule violations, so now they face more severe consequences.