Published on Jan 4th, 2024 |

Private Equity Adviser Charged $4 Million for Compliance Failures

SEC Releases

Introduction

The SEC announced on December 26th that a New York Private Equity RIA was charged for Policies and Procedures failures, specifically related to failing to supervise.

These failures related to both the misuse of material, nonpublic information (“MNPI”) and the dissemination of misleading communications with current and prospective investors.

What Happened?

What Happened?

According to the SEC:

  • The RIA advised Privately-Offered Private-Equity Funds
    • Most holdings were of privately held companies.
    • Some were public companies on US or foreign stock exchanges.
  • Firm Policies and Procedures were in place prohibiting:
    • The disclosure of MNPI, unless necessary for legitimate business purposes.
    • The use of Fund Valuations unapproved by the Valuation Committee in communication with any investors or in valuation-based performance statements.
    • The use of written communication addressed to more than one person without prior approval from compliance.
    • The use of performance data presented in an unfair or misleading manner, or without an appropriate explanatory footnote that would be supplied by compliance personnel.
  • From at least 2019 to 2022, Senior Personnel violated those procedures by sending emails to investors and industry contacts that unnecessarily provided MNPI about Mergers & Acquisitions concerning Public Companies.
  • Senior Personnel repeatedly sent emails to investors and industry contacts soliciting investment capital by making claims about performance that were based on their own estimated and current valuations that lacked approval from the Valuation Committee (that only met quarterly).
  • In multiple instances, emails were sent by Senior Personnel to multiple people with identical passages of performance-related content without seeking approval from Compliance Personnel and without proper explanatory footnotes.
  • Despite the frequent use of NDAs to protect MNPI, Senior Personnel failed to determine whether their disclosures would be appropriate under Firm Policies and Procedures.
  • Due to these failures, the Firm was required to pay a penalty of $4 million.

Vigilant's Conclusion

Vigilant’s Conclusion

It is not sufficient to maintain written compliance and Policies and Procedures without properly enforcing themSuccessful Compliance Programs require both implementation and on-going supervision.

Firms looking to avoid costly regulatory burdens should evaluate both their written policies and procedures and the process of oversight from Compliance Personnel.

Vigilant offers end-to-end Compliance Solutions that can help Firms evaluate and remediate potential deficiencies in their current practices.

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