SEC Settles Charges Against Investment Adviser for Failing to Disclose SPAC-Related Conflicts

On September 6, 2022, the SEC announced that it settled charges against a registered investment adviser (the Adviser) for failing to disclose conflicts of interest arising from investing client assets in special purpose acquisition companies (SPACs) whose sponsors were owned by personnel of the Adviser and by a private fund advised by the Adviser, and for failing to timely report on Schedule 13D its beneficial ownership of stock of a public company that was one SPAC’s combination target.

According to the SEC’s order (Order), personnel of the Adviser owned interests in the sponsors of certain Adviser-formed SPACs and were entitled to compensation upon completion of the SPACs’ business combinations. The Order notes that without disclosing these conflicts to its clients, the Adviser repeatedly made SPAC-related investments with assets of a private fund it advised including in PIPE financing transactions to help ensure the SPACs would complete their business combinations. The Order also states that the Adviser made material misstatements and omissions concerning the SPACs when it distributed letters to investors and prospective investors highlighting the successes of the SPACs, without disclosing that the Adviser’s personnel owned interests in the SPACs’ sponsors.

The Order also found that the Adviser failed to timely file a report on Schedule 13D regarding its beneficial ownership of stock in a public company. Although the Adviser had lost its status as a passive investor in the company while negotiating a potential transaction involving one of the SPACs and the company, the Adviser failed to timely file a required report on Schedule 13D and improperly acquired the beneficial ownership of additional common stock of the company during the period prior to filing a Schedule 13D.

The Adviser was ordered to cease and desist from any further violations of the Advisers Act or the Exchange Act, was censured, and was forced to pay a civil penalty of $1.5 million.

The Order can be found here.

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