The sponsor of a private fund agreed to disgorge its management fees for soliciting investors without a pre-existing, substantive relationship. The SEC accuses the fund sponsor and its principal with engaging in a public solicitation through a website and media interviews. The respondents had filed a Form D Notice of a private offering. The alleged public solicitation violated Section 5 of the Securities Act, which requires a registration statement before engaging in a public offering. During the unlawful offering, the value of the fund declined 62%, which amounted to over $300,000. The Order notes that the principal had no prior securities industry experience. The SEC declined to impose further penalties because of the respondents’ financial condition.
Most securities professionals know that you cannot raise capital in a private offering unless the offeror can document a pre-existing relationship with potential investors. However, as FinTech and the securities markets intersect, the neophytes may not realize that they are tripping over the regulatory wires. This respondent is lucky that the SEC didn’t order full rescission of the offering and the refund of the amount lost.