Investment Adviser Fined for Fee Violations and Disclosure Failures

In separate actions, an investment adviser settled SEC charges for (i) failing to disclose material information as to distributable income in a closed-end fund, and (ii) failing to waive certain advisory fees as required by an agreement with a mutual fund.

In the first Order, the SEC found that the adviser failed to waive approximately $27 million of advisory fees as required by an agreement it had with a mutual fund. The SEC said that the failure was due to an error in its formula to calculate the fee waiver amount. The SEC said that the adviser discovered the error, hired a third party to remediate the issue, and subsequently reimbursed shareholders of the mutual fund over $30 million in "unwaived fees, lost performance, and interest." The SEC concluded that, prior to the reimbursement, the adviser violated Advisers Act Section 206(4) ("Prohibited transactions by investment advisers") and Rule 206(4)-7 ("Compliance procedures and practices") thereunder.

To settle the charges, the adviser agreed to (i) cease and desist from further regulatory violations, (ii) a censure and (iii) pay a $2,500,000 civil money penalty.

In a separate Order, the SEC found that the adviser omitted material information regarding its use of paired interest rate swaps as to a closed-end fund. The SEC said that the adviser failed to disclose that the paired interest rate swaps in the fund’s portfolio had become a material source of distributable income. The SEC stated that the continued use of paired swaps caused a net asset value decline of the fund. As a result, the SEC concluded that the adviser violated Investment Company Act Section 34(b) ("Unlawful representations and names"), Advisers Act Section 206(4) and Rule 206(4)-8 ("Pooled investment vehicles") thereunder.

To settle the charges, the adviser agreed to (i) cease and desist from further regulatory violations, (ii) a censure and (iii) pay a civil monetary penalty of $6,500,000.