September 2, 2022

Investment Adviser Settles SEC Charges for Excessive Management Fees

A venture capital fund adviser settled SEC charges for miscalculations that resulted in the payment of excessive management fees to two funds.

The SEC found that the adviser (i) failed to make fee adjustments for securities subject to certain dispositions as required under specified limited partnership agreements ("LPAs"), (ii) failed to calculate its management fee at the "portfolio company level" instead of at the "individual portfolio company security level" as required, (iii) incorrectly included accrued but unpaid interest in the management fee calculation, and (iv) failed to appropriately reduce its fees during the post-commitment period as required by the LPAs.

As a result, the SEC determined that the adviser violated Section 206(2) and Section 206(4) of the Advisers Act ("Prohibited transactions by investment advisers") as well as IAA Rule 206(4)-8 ("Pooled investment vehicles").

To settle the charges, the adviser agreed to (i) cease and desist, (ii) a censure, (iii) a civil monetary penalty of $175,000 and (iv) undertakings to improve oversight of fee calculations.