Private Equity Firm Settles Charges for Failures in Handling Material Non-Public Information

A private equity firm and registered investment adviser settled SEC charges for failing to implement policies to prevent the misuse of material non-public information ("MNPI").

The SEC stated that the firm had made a major investment in a portfolio company which allowed it to appoint an employee to the company's board, thus enabling the firm to obtain MNPI. According to the Order, after obtaining potential MNPI about the portfolio company, the private equity firm purchased more than 1 million shares of the portfolio company's stock. The SEC found that the firm failed to consider the "special circumstances" under which a firm representative acted as both a portfolio company board member and a firm employee involved in certain trading decisions. The SEC concluded that the firm had not required its compliance staff to determine whether the employee-board member had possession of potential MNPI before it purchased the additional portfolio company shares. The SEC charged the private equity firm with violations of Investment Advisers Act Section 204A ("Prevention of Misuse of Mon-public Information") and Investment Advisers Act Section 206(4) ("Prohibited Transactions by Investment Advisers").

To settle the charges, the firm agreed to (i) cease and desist from further violating SEC regulations, (ii) a censure, and (iii) a $1,000,000 civil money penalty.