Adviser Settles SEC Charges for Investing in Films "Produced" by Principal

A registered investment adviser and its principal settled SEC charges for failing to disclose conflicts of interest and for making misleading statements to clients that invested in films for which the adviser's principal served as a producer.

According to the Order, the investment adviser advised a private investment fund and individual clients to make investments in films produced by a film production company that indirectly paid the adviser's principal over $500,000. The investment adviser failed to disclose these payments to the firm's clients.

The SEC found that the investment adviser and its principal satisfied a redemption request from one fund investor, but did not satisfy several redemption requests submitted at the same time by other fund investors. The SEC concluded that, by preferencing one investor's redemption request over other client redemption requests, the investment adviser violated its fiduciary duties.

As a result, the SEC determined that the firms violated Sections 206(2) and 206(4) of the Investment Adviser Act ("Prohibited transactions by investment advisers") and IAA Rule 206(4)-8 ("Pooled investment vehicles").

To settle the charges, and without admitting or denying the underlying facts, the investment adviser and its principal agreed to, (i) cease and desist from committing or causing any violations and any future violations, and (ii) a censure. The investment adviser agreed to pay a civil money penalty in the amount of $200,000. The principal agreed to pay disgorgement of $531,787, prejudgment interest of $95,924.09 and a civil penalty of $150,000.