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Unregistered Fund Manager Still Liable for Breach of Fiduciary Duty


The SEC fined and barred the principal of an unregistered private fund manager for breaching his fiduciary duty by failing to disclose that affiliate intermediaries profited from fund transactions.  The SEC alleges that the respondent used affiliate companies as intermediaries for the buying and selling oil and gas royalty interests and that the affiliates collected significant profits.  The SEC charges the firm with failing to disclose these transactions, instead telling investors that the fund would receive the best price possible and that any affiliate transaction would be conducted at arm’s length.  Even though the fund manager was not registered, the SEC accused him of violating the Advisers Act because he engaged in advisory activities and breached his fiduciary duty of full disclosure.

OUR TAKE: Private fund managers maintain accountability for alleged breaches of fiduciary duty even if not registered.  This includes conduct that pre-dates Dodd-Frank’s registration requirements.  Also, it is unclear how much disclosure is enough to allow affiliate transactions.


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