September 7, 2022

SEC Fines Adviser for SPAC-Related Conflict of Interest and Compliance Violations

An investment adviser settled SEC charges for conflicts of interest, material misstatements and omissions, supervision violations and reporting violations related to the adviser's activities with special purpose acquisition companies.

According to the Order, the SEC found that investment adviser personnel had "ownership interests in SPAC sponsors" and that the investment adviser had a "practice of investing client assets in affiliated SPACs." The SEC also determined that the investment adviser "lost its status as a passive investor while negotiating a potential transaction involving a SPAC and a public company of which it was a greater-than-five-percent beneficial owner." The SEC determined that the adviser failed to file a report on Schedule 13D as required when an ownership interest changed from passive to active and "improperly acquired the beneficial ownership of additional common stock of the public company during the period prior to filing a Schedule 13D."

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"), IAA Rule 206(4)-7 ("Compliance procedures and practices"), IAA Rule 206(4)-8 ("Pooled investment vehicles"), Section 13(d) of the Exchange Act ("Periodical and other reports") and SEA Rule 13d-1 ("Filing of Schedules 13D and 13G").

To settle the charges, the adviser agreed to (i) a censure and (ii) a civil monetary penalty of $1,500,000.