Three firms settle SEC charges over custody rule violations

Reuters

Oct 28 (Reuters) - Three investment firms have beensanctioned by the U.S. Securities and Exchange Commission forviolating a rule designed to insure the safekeeping of customerfunds, the agency said on Monday.

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

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

"The heart of the relationship between advisers and theircustomers is the safety of client assets," Andrew Ceresney,co-director of the SEC enforcement division, said in astatement. "Surprise exams or procedures associated with auditedfinancial statements provide additional safeguards againstassets being stolen or misused."

Further Lane, Chief Executive Jose Miguel Araiz, 52, and anaffiliated adviser agreed to pay $347,122 to settle with theSEC, while Araiz also agreed to pay a $150,000 penalty andaccept 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 ExecutiveIrving Knelman, 64, accepted a $75,000 penalty and three-yearban 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 firmresponded promptly to the SEC's concerns and has enhancedoversight.

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

The SEC administrative proceedings are In re: Knelman AssetManagement 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.

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