Enforcement Actions & Settlements

September 22, 2017

SEC Enforcement Actions Highlight Personal Liability Risk for Hedge Fund Executives

On August 15, 2017, the Securities and Exchange Commission settled a pair of related enforcement actions in a case that had been ongoing since March 2015, involving two now-defunct affiliated investment advisers’ Form ADV misstatements and failures to keep separate books and records. The SEC held the registrants’ in-house chief operating officer and outsourced chief compliance officer responsible for the violations, and their cases remind hedge fund managers that the Office of Compliance Ins Read More »

September 8, 2017

SEC Caps Off Summer With Another Enforcement Action Pointing Up Primacy of Managers’ Transparency to Investors

On August 14, 2017, the Securities and Exchange Commission entered into a settlement agreement with Denver-based registered investment adviser Coachman Energy Partners LLC and its chief executive officer and manager Randall D. Kenworthy in connection with their alleged failure to adequately disclose Coachman’s methodology for calculating management fees and expenses related to the advisory services it provided to four private oil and gas funds, and for failing to disclose or obtain investor co Read More »

SEC Rules Real Estate Transaction Between Manager’s Funds Resulted in Breach of Fiduciary Duty, Though Price Arguably Reasonable

On July 6, 2017, New York-based private equity fund adviser, Paramount Group Real Estate Advisor LLC, settled the Securities and Exchange Commission’s negligence-based fraud charges against it stemming from the manager’s failure to cause one of the funds it advised to reimburse a second fund it advised for certain development expenses the second fund incurred prior to its sale of a real estate investment to the first fund. The omission resulted in a breach of the firm’s fiduciary duties to Read More »

August 11, 2017

SEC Charges Adviser with Failure to Disclose Conflicts and Custody Rule Violations

On July 28, 2017, the Securities and Exchange Commission entered into an agreement with Columbia River Advisors, LLC, a Washington state-based registered investment advisor, and two of Columbia River’s principals, Benjamin J. Addink and Donald A. Foy, settling charges that they failed to disclose to investors that they deployed a portion of one fund’s assets into a second fund whose purpose was to grow Columbia River’s investment advisory business. The deviation from the first fund’s sta Read More »

July 28, 2017

SEC Sanctions Firm For Overvaluing Assets on Financial Statements, Results in Custody Rule Violations

On July 19, 2017, the Securities and Exchange Commission entered into an agreement with Enviso Capital, LLC, Ryan Bowers and Jeffrey LaBerge settling charges that between 2012 and 2014, the California-based exempt reporting adviser and two of its principals materially overstated the value of two private funds Enviso Capital advised, which precipitated a chain reaction of subsequent misstatements in fund financial statements, management discussion and analyses sent to investors and Form ADV filin Read More »

July 14, 2017

Private Fund Manager Faces Sanctions for Borrowing From Funds Without Express Investor Disclosures, Though Funds Were Repaid

On June 29, 2017, the Securities and Exchange Commission sanctioned registered investment adviser Resilience Management, LLC, and Bassem Mansour, its chief executive officer, for improperly borrowing money from the RIA’s three private equity funds and causing the funds’ general partners to not make timely capital contributions. According to the SEC, between September 2010 and August 2013, Resilience and Mansour borrowed from the funds without authorization from their operating documents and Read More »

May 19, 2017

Pair of Enforcement Actions Shows SEC Scrutinizes Forms ADV for Both Major and Minor Misrepresentations

On May 5, 2017, the Securities and Exchange Commission entered two separate orders instituting administrative and cease and desist proceedings and imposing sanctions against two registered investment advisers and their founders for inconsistent or false statements disclosed in their Forms ADV. Although the facts underlying each action are distinct, taken together, they show just how meticulously the SEC reviews each of advisers’ Form ADV representations—on their face, as compared to prior an Read More »

May 5, 2017

SEC Rules Firm Can’t Cherry-Pick Application of Attorney-Client Privilege Protection

Hedge fund managers rely on outside counsel to advise on myriad legal matters, from fund formation to issues that arise in day-to-day operations. A recent Securities and Exchange Commission enforcement proceeding counsels, however, that the attorney-client privilege is not inviolate, especially if managers attempt to use it as a sword and a shield. On February 22, 2017, an administrative law judge deemed Gray Financial Group’s attorney-client privilege waived after the Atlanta-based registered Read More »

April 20, 2017

Recent SEC Complaint Confirms Aberrational Performance Inquiry Initiative Alive and Well

The Securities and Exchange Commission’s Aberrational Performance Inquiry initiative continues to prove that it’s a valuable resource in helping the regulator verify the accuracy of hedge fund managers’ assets under management, returns and other marketing claims, according to a recent complaint the agency filed in federal court against an NY-based investment adviser. The SEC alleges that Hyaline Capital Management and one of its founders, Justin Meadlin, repeatedly conflated the firm’s A Read More »

April 6, 2017

Enforcement Action Highlights Fair Value Concerns and Risks of Inflated Fees Resulting from Improperly Priced Assets

The Securities and Exchange Commission remains focused on auditing the accuracy of hedge fund managers’ valuation practices, both compared to Generally Accepted Accounting Principles and managers’ own policies and procedures, according to a recent enforcement action against Covenant Financial Services, LLC, an Oklahoma City-based investment adviser registered with the Commission from June 2007 to August 2016, and Stephen Shafer, the firm’s majority owner, chief investment officer, portfoli Read More »