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SEC Fines NY Firm for Form CRS Lapse

The commission argued that ARS Capital Advisors failed to deliver the disclosure document to clients by the June 2020 deadline.

The Securities and Exchange Commission settled charges with a small New York firm for failing to timely file and deliver its Form Customer Relationship Summary (CRS) to clients.

Jericho, New York–based ARS Capital Advisors has been an SEC-registered investment advisor since October 2010, with about $133 million in assets under management and 362 clients, according to the SEC’s order. 

The Form CRS requirement for RIAs was passed in tandem with the SEC’s Regulation Best Interest in 2019 and went into effect the following year. The two-page regulatory document was intended to briefly offer a streamlined understanding of a firm’s services, fees and conflicts, using “plain English” language for the benefit of retail customers.

Advisory firms were required to file their CRS with the commission and deliver the new disclosure document to prospective clients by June 30 and all existing clients by the end of July. According to the commission’s order, ARS Capital did not meet that deadline. The SEC’s Division of Examinations contacted the firm on Oct. 14, 2020, but it still failed to file, according to the SEC.

On Feb. 21, 2021, the exams division tried again and announced a formal examination into the firm for its Form CRS lapse. ARS Capital then delivered Form CRS to existing retail clients on March 3 and posted the form on its website after March 4. Finally, the firm filed its CRS with the commission on March 30.

The SEC’s first enforcement actions for failing to adhere to CRS delivery deadlines came in July 2021, when the Enforcement Division charged 21 investment advisory firms and six broker/dealers with the violation. The actions were announced on Gurbir S. Grewal’s first day as the director of the Enforcement Division, who said the cases reinforced the importance of meeting the CRS filing obligations. 

The commission later fined two other New York–based firms, Disciplined Capital Management and Lexion Capital Managementfor similar lapses. In February of this year, the SEC charged an additional 12 firms for similar conduct. 

To some securities attorneys, the enforcement actions related to the timeliness of filing Form CRS represent the easiest actions the commission can pursue and prove, as opposed to thornier questions about whether firms erred in the substance of what they included (or did not include) in the form.

During a February panel sponsored by the Institute for the Fiduciary Standard, Ben Edwards, a professor at the William S. Boyd School of Law at the University of Nevada, Las Vegas, said these types of cases required few resources from the regulator, describing them as “low-hanging fruit.” 

“In some sense, this fruit isn’t even hanging on the tree,” he said. “It’s lying on the ground.”

ARS Capital could not be reached for comment as of press time. As part of the agreement, ARS Capital didn’t admit or deny any of the SEC’s findings, but as a part of the settlement agreed to a censure, a cease-and-desist order and agreed to pay a $25,000 civil penalty.

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