Officials in Washington D.C. have fined Apex Fund Services’ US division $350,000 over failures to correct faulty accounting by two clients.

A statement from financial watchdog SEC says the fund administrator missed or ignored clear indications of fraud while contracted to keep records and prepare financial statements and investor account statements for certain funds.

The investment vehicles were managed by ClearPath Wealth Management and EquityStar Capital Management. 

Both have since been charged with fraud in SEC enforcement actions.

“Fund administrators are responsible for ensuring that fund records provide accurate information about the value and existence of fund assets,” said Andrew Ceresney, director of the SEC’s division of enforcement. 

“Apex failed to live up to its gatekeeper responsibility and essentially enabled the schemes to persist at each of these advisory firms until the SEC stepped in.”

With ClearPath, SEC claims Apex failed to act appropriately after detecting undisclosed brokerage and bank accounts, undisclosed margin and loan agreements, and inter-series and inter-fund transfers made in violation of fund offering documents.

Apex also failed to correct previously issued accounting reports and capital statements and continued to provide materially false reports and statements to ClearPath and the funds’ independent auditor. 

ClearPath then used Apex’s false reports and statements to communicate financial positions and performance to the ClearPath funds’ investors.

In regards to EquityStar and its owner Steven Zoernack, Apex accounted for more than $1m in undisclosed withdrawals by Zoernack from the EquityStar funds as receivables owed to the funds, despite no evidence that Zoernack was able or willing to repay the withdrawals. 

Apex confronted Zoernack about the withdrawals and concluded he was unlikely to repay the funds.  

Nevertheless, Apex did not properly account for Zoernack’s withdrawals – which grew to more than half of the net asset value of one fund, and more than one quarter of the other.

Apex sent monthly account statements to investors that it knew or should have known materially overstated the investors’ true holdings in the funds. 

Without admitting or denying the SEC’s findings, Apex agreed to pay a total of $352,449.

"Apex does not admit or deny the SEC’s historical findings from 2012 but respect their decision and have made every effort possible to accommodate any requests for information,"  the company said in an official statement sent to Global Investor/ISF. 

"We are satisfied with the resolution of the investigation, with a voluntary settlement amount of $150,000, and remain committed to full compliance with all legal and regulatory requirements globally. We will continue to fully cooperate with regulators on any matter brought to our attention in any jurisdiction.

"It’s also important to note this is relevant to Apex Fund Services US Inc only."

The SEC’s investigations were conducted by the asset management unit and investigative teams in the Washington D.C. and Boston offices.