A private fund manager faces both criminal and civil charges for misleading investors about the use of investment funds. The SEC charges that the defendant made unwarranted investment return promises, failed to disclose investment losses, and used investor funds for undisclosed personal expenses and to pay back other investors. The PPM allowed the reimbursement of organization costs, an organizational fee of 3%, and a 3% management fee. The SEC alleges that the defendant paid personal expenses “far in excess of any amount to which he was entitled” and engaged in a Ponzi-like scheme. The U.S. Attorney’s Office for the Middle District of Florida announced parallel criminal charges.
OUR TAKE: The SEC is cracking down on the payment of fees and expenses to private fund sponsors that are not specifically disclosed and authorized in the offering documents. Also, firms should take notice that the taking of unauthorized fees could lead to criminal charges.