On November 21, 2025, the Securities and Exchange Commission (SEC) took action against a registered investment adviser, issuing an order instituting and settling cease-and-desist proceedings for causing a registered fund to violate the auditor independence requirement as mandated by Section 30(g) of the Investment Company Act of 1940. 

The SEC’s order reveals that the adviser knowingly retained a solo practitioner accountant to audit the fund’s financial statements despite being aware that the accountant’s spouse held approximately $290,000 invested in the fund. This ownership stake, according to the SEC, constituted a direct financial interest in the audit client, thereby compromising the accountant’s independence under Rule 2-01(c)(1) of Regulation S-X and established SEC/PCAOB independence standards. 

Further investigation revealed that the adviser erroneously deemed the spouse’s investment immaterial relative to the fund’s total assets, which amounted to approximately $52 million. Crucially, the adviser failed to disclose this investment to the fund’s board before the board approved the accountant’s engagement. Consequently, the adviser was found to have caused the fund to violate Section 30(g), which necessitates that registered funds include audited financial statements accompanied by a certificate from independent public accountants in their annual reports. 

As part of the settlement, the adviser consented to cease and desist from future violations and agreed to pay a civil money penalty of $10,000. 

Implications for Investment Advisers and Broker-Dealers 

This SEC action serves as a critical reminder of the importance of meticulous oversight in the fund auditor selection process. Investment advisers must implement comprehensive procedures to identify and effectively address potential auditor conflicts of interest. These procedures should specifically include scrutinizing ownership interests held by auditors or their immediate family members. A seemingly minor oversight can have significant regulatory consequences. 

Moreover, broker-dealers involved in distributing fund shares should maintain vigilance regarding fund governance and compliance practices. Auditor independence issues can directly impact fund disclosures and the ongoing suitability assessments required for investors. A lack of auditor independence can undermine the reliability of financial information, potentially harming investors and raising serious regulatory concerns. 

If you require any assistance in ensuring your firm is compliant with the amendments or need assistance with implementation, contact LawVisory.