Fund Administrator Settles Charges that it Failed its Gatekeeper Responsibilities
On June 16, 2016, the SEC settled civil claims with fund administrator Apex Fund Services (US) Inc. (“Apex”), relating to allegations that Apex failed to heed red flags and correct faulty accounting for two of its clients. SEC Press Release, Private Fund Administrator Charged with Gatekeeper Failures, Rel. No. 2016-120 (June 16, 2016).
As a fund administrator, Apex kept records and prepared financial statements and investor account statements for private funds, including ClearPath Wealth Management (“ClearPath”) and EquityStar Capital Management (“EquityStar”). According to the SEC, Apex missed or ignored clear indications of fraud by the funds, and issued false reports concerning ClearPath and EquityStar’s financial positions and performance, which the funds then communicated to their investors. In the Matter of Apex Fund Services (US) Inc., File No. 3-17299 (June 16, 2016); In the Matter of Apex Fund Services (US) Inc., File No. 3-17300 (June 16, 2016). Without admitting or denying the SEC’s findings, Apex paid over $350,000 to settle the claims.
The enforcement actions against Apex are consistent with the SEC’s recent focus on holding gatekeepers accountable for the important role they play in the securities industry. Under its so-called “Operation Broken Gate” program, the SEC has pledged to bring enforcement actions against gatekeepers who fail to comply with professional standards and put investors at risk by failing to detect fraud or other financial misstatements. The SEC alleged that Apex’s failures as a gatekeeper was a cause of Clearpath’s and EquityStar’s underlying violations.