The Securities and Exchange Commission today announced that an investment advisory firm, two owners, and a former chief compliance officer have agreed to settle charges that the firm again violated the custody rule after being reprimanded for violations only a few years before.
Sands Brothers Asset Management LLC 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. They also must have a compliance monitor for three years. Former CCO Christopher Kelly, who also served as chief operating officer, 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.
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. Sands Brothers and its co-founders first landed in the SEC’s crosshairs 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.
“There is no place for recidivism in the securities markets,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office. “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.”
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.
The SEC’s investigation was conducted by Janna Berke, Nancy Brown, and Wendy Tepperman of the New York office. The litigation was led by Ms. Brown, Ms. Berke, and Jorge Tenreiro. The case was supervised by Sanjay Wadhwa.