Three firms settle SEC charges over custody rule violations

Mon Oct 28, 2013 4:27pm EDT

The seal of the U.S. Securities and Exchange Commission hangs on the wall at SEC headquarters in Washington, June 24, 2011. REUTERS/Jonathan Ernst

The seal of the U.S. Securities and Exchange Commission hangs on the wall at SEC headquarters in Washington, June 24, 2011.

Credit: Reuters/Jonathan Ernst

(Reuters) - Three investment firms have been sanctioned by the U.S. Securities and Exchange Commission for violating a rule designed to insure the safekeeping of customer funds, the agency said on Monday.

The SEC said Further Lane Asset Management LLC of New York, GW & Wade of Wellesley, Massachusetts, and Knelman Asset Management Group LLC of Minneapolis failed to maintain customer assets with qualified custodians, or hire independent public accountants to conduct "surprise exams" to verify the assets exist.

It said the charges were based on a 2010 amendment to a rule adopted under the Investment Advisers Act of 1940. The SEC said this rule requires advisers to have the surprise exams and to have a reasonable basis to believe that custodians are sending account statements to investors at least once a quarter.

"The heart of the relationship between advisers and their customers is the safety of client assets," Andrew Ceresney, co-director of the SEC enforcement division, said in a statement. "Surprise exams or procedures associated with audited financial statements provide additional safeguards against assets being stolen or misused."

Further Lane, Chief Executive Jose Miguel Araiz, 52, and an affiliated adviser agreed to pay $347,122 to settle with the SEC, while Araiz also agreed to pay a $150,000 penalty and accept a one-year industry ban, the SEC said.

GW & Wade and Knelman agreed to pay respective penalties of $250,000 and $60,000 to settle, while Knelman Chief Executive Irving Knelman, 64, accepted a $75,000 penalty and three-year ban from serving as a chief compliance officer, the SEC said.

The three firms also agreed to censures, the SEC said.

Neil Goldberg, a principal with GW & Wade, said his firm responded promptly to the SEC's concerns and has enhanced oversight.

A lawyer for Further Lane declined to comment, while a lawyer for Knelman did not immediately respond to requests for a comment.

The SEC administrative proceedings are In re: Knelman Asset Management Group LLC et al, No. 3-15588; In re: GW & Wade LLC, No. 3-15589, and In re: Further Lane Asset Management LLC et al, No. 3-15590.

(Reporting by Jonathan Stempel and Julia Edwards in New York; Editing by Dan Grebler and Tim Dobbyn)

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