The SEC announced today that Apex Fund Services (US), Inc. (“Apex”), a fund administrator that provided accounting and administrative services to four private funds managed by ClearPath Wealth Management, LLC (“ClearPath”) and two private funds managed by EquityStar Capital Management, LLC (“EquityStar”) agreed to pay more than $350,000 to settle charges brought by the SEC after it determined that Apex had, in the course of its administrative and fund accounting duties, committed a series of failures and was a cause of Advisers Act violations committed by ClearPath and EquityStar.
In the ClearPath Order (available at https://www.sec.gov/litigation/admin/2016/ia-4428.pdf), the SEC noted that, during its engagement, Apex:
- Ignored or missed “red flags,” such as undisclosed brokerage accounts and bank accounts, transactions with related parties, interfund transfers (in violation of fund offering documents), and undisclosed margin or credit agreements;
- Failed to correct previously issued accounting reports and capital statements it had prepared despite the existence of the red flags; and
- Provided to ClearPath reports and statements that were materially false, which reports were then used by ClearPath to provide the funds’ investors and independent auditor information about financial positions and performance.
Consequently, the SEC determined that Apex was a cause of violations by ClearPath and its president of Sections 206(2) and 206(4) of, and Rule 206(4)-8 under, the Advisers Act.
In the EquityStar Order (available at https://www.sec.gov/litigation/admin/2016/ia-4429.pdf), the SEC noted that, during its engagement, Apex:
- Accounted for certain withdrawals (totaling more than $1 million) made by EquityStar and its managing member as receivables, even though Apex had no reason to believe that EquityStar or the managing member were able or willing to repay the withdrawals;
- Provided monthly statements to investors on behalf of the managing member and EquityStar that did not state the existence and amounts of the withdrawals, thereby providing statements that materially overstated the value of the investors’ holdings in the funds; and
- Did not disclose to investors the existence of the withdrawals until almost 2 years after its engagement commenced.
Consequently, the SEC determined that Apex was a cause of EquityStar’s and the managing member’s violations of Sections 206(2) and 206(4) of, and Rule 206(4)-8 under, the Advisers Act.