On May 26, 2020, Los Angles based private equity firm managing over $100 Billion in RAUM, Ares Management, LLC, agreed to pay 1 Million dollars to settle charges. The firm had failed to implement and enforce policies and procedures created to prevent the misuse of material nonpublic information. Violating the compliance policies and procedures requirements of Sections 204A and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7.
The SEC discovered that in 2016 Ares had invested millions into a public company through a loan and equity investment that allowed Ares to appoint a senior employee to the portfolio company’s board. Ares compliance policies failed to accommodate their special circumstances of having an employee on the board who was involved in trading.
The SEC order shows that Ares potentially obtained material non-public information about the company. This information included changes in senior management, adjustments to the company’s hedging strategy, and decisions with respect to the company’s assets, debt, and interest payments. Allegedly after they obtained this information Ares purchased 17% of the publicly available shares which was more than 1 million shares of the company’s common stock.
Their compliance policies failed to require them to document whether they received material non-public information before approving a trade. Advisers should have reasonable policies and procedures in areas related to high risk and conflicts of interest to their business.
Click here to read the SEC Press Release and learn more.
The importance of a comprehensive Compliance Program, including independent periodic assessment, can help ensure your compliance program properly addresses applicable risks to your business.
Contact us today and see how we can help you with your Compliance Program.