Adviser Fined for Various Breaches of Fiduciary Duty

An investment adviser for private funds settled charges with the SEC for breach of fiduciary duty related to undisclosed account fees, transfers and accessibility.

According to the Order, the SEC found that the adviser breached its fiduciary duty by its failure to (i) timely disclose the acceleration of certain fees when that portfolio company was sold and (ii) determine if the fee acceleration was in the client's best interest. The SEC stated that the adviser had transferred certain expiring funds' assets to a new private fund it also advised, locking up investor money without first obtaining investor consent or a means for investors to access their funds. The adviser also loaned money from one private fund under management to another fund managed by an affiliated adviser without determining if it was in the client's best interest.

As a result, the SEC found that the adviser violated antifraud and compliance provisions of the Advisers Act Sections 206(2) and (4) ("Prohibited transactions by investment advisers") as well as Rule 206(4)-7 ("Compliance procedures and practices").

To settle the charges, the adviser agreed to (i) cease and desist from further regulatory violations, (ii) a censure and (iii) pay a $1.2 million penalty and $445,460 in disgorgement and prejudgment interest.