Investment Adviser Settles SEC Charges for Failure to Disclose SPAC-Related Conflicts of Interest

An investment adviser settled SEC charges for failure to (i) disclose conflicts of interest related to its ownership of special purpose acquisition companies ("SPACs") and (ii) file timely and accurate reports.

The SEC found that the New York-based investment adviser ("IA") formed multiple SPACs whose sponsors were owned by both their own personnel and private funds advised by the IA. The SEC found that the IA invested its client assets in transactions that facilitated the completion of the SPACs' business combinations, without timely disclosing these conflicts of interest. Additionally, the IA failed to file accurate reports regarding beneficial ownership of common stock resulting from a SPAC business combination.

The SEC also determined that the IA's employees were entitled to compensation from the SPAC sponsors upon completion of the recommended business combinations.

As a result, the SEC found that the IA violated Advisers Act Sections 206(2) and 206(4) ("Prohibited transactions by investment advisers") and Rule 206(4)-7 ("Compliance procedures and practices"), and violated and/or caused violations of the beneficial ownership reporting provisions of Exchange Act Section 13(d) ("Periodical and Other Reports") and Rules 13d-1 ("Filing of Schedules 13D and 13G") and 13d-2 ("Filing of amendments to Schedules 13D or 13G").

Without admitting or denying the findings, the IA agreed to (i) a cease-and-desist order, (ii) a censure, and (iii) a civil monetary penalty of $1.4 million.