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Exempt Reporting Adviser Barred and Fined Over $1.1 Million

The principal of an exempt reporting adviser was barred from the industry and agreed to pay over $1.1 Million in disgorgement and penalties for conflicted transactions and misrepresentations.  The SEC charges that the respondent caused a fund he managed to purchase a portfolio company from an affiliated fund in violation of the purchasing fund’s debt and concentration limits.  The SEC asserts that the respondent intentionally misled investors by undervaluing the portfolio company in financial statements and disclosure documents.  The SEC also claims that the respondent misled investors about underlying investments and charging undisclosed monitoring fees.  The SEC also fined the firm’s CFO/CCO.  The SEC cites violations of the anti-fraud rules under the Advisers Act (206(4)-8), the Securities Act (17(a)(1) and 17(a)(3)), and the Exchange Act (10b-5).

An exempt reporting adviser is still subject to several provisions of the Advisers Act, including its fiduciary and anti-fraud rules.  We recommend that ERAs implement a legitimate compliance program to avoid a firm-ending regulatory action like this one.