SEC fines venture capital fund adviser for misleading marketing on fees

Rick Steves

The “industry standard ‘2 and 20’” language was approved by CEO Michael Collins, who personally used it with fund investors and prospective investors.

The Securities and Exchange Commission has gone after venture capital fund adviser Alumni Ventures Group (AVG) for alleged misleading statements about its management fees as well as inter-fund transactions in breach of fund operating agreements. Michael Collins, Chief Executive Officer at AVG, was charged with causing AVG’s violations.

AVG settled charges by repaying $4.7 million to affected funds and agreed to pay a $700,000 penalty, whereas Collins agreed to pay a $100,000 penalty, according to the announcement.

“Industry standard ‘2 and 20”

AVG’s website and other marketing communications said the management fee for its venture capital funds was the “industry standard ‘2 and 20.’”

This was found to be misleading because AVG led some investors to believe that AVG would collect a two-percent management fee during each year of its funds’ 10-year term, and separately collect a 20-percent performance fee, the SEC said.

The financial watchdog added that AVG’s typical practice was instead to assess management fees totaling 20 percent of an investor’s fund investment (representing ten years’ of two-percent annual management fees) upon the investor’s initial fund investment.

The “industry standard ‘2 and 20’” language was approved by CEO Michael Collins, who personally used it with fund investors and prospective investors.

AVG also made inter-fund loans and cash transfers between funds and made loans to certain funds in violation of the funds’ respective operating agreements, the SEC stated.

Adam S. Aderton, Co-Chief of the SEC Enforcement Division’s Asset Management Unit, said: “Venture capital fund advisers, like all advisers to funds, must accurately describe their fees and abide by the funds’ agreements. When appropriate, enforcement actions like this one hold firms accountable when they fail to meet these obligations.”

AVG and Collins consented to the entry of the SEC’s order finding that AVG violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8, and that Collins caused AVG’s violations.

Without admitting or denying the SEC’s findings, AVG and Collins agreed to a cease-and-desist order, AVG agreed to a censure and to pay a $700,000 penalty, and Collins agreed to pay a $100,000 penalty.

The SEC has recently charged New York-based robo-adviser Wahed Invest, LLC with making misleading statements and breaching its fiduciary duty, and for compliance failures related to its Shariah advisory business.

The complaint alleges that Wahed Invest advertised the existence of its own proprietary funds when no such funds existed, and also promised investors that it would periodically rebalance their advisory accounts, but did not do so.

The false statements lasted from September 2018 until July 2019, the agency claims, adding that when Wahed Invest ultimately launched a proprietary ETF in July 2019, it used its clients’ advisory assets to seed the ETF without prior disclosure to clients of any conflicts of interest.

Read this next

Retail FX

FF Simple and Smart Trades says Goodbye to CySEC authorization

The Cyprus Securities and Exchange Commission (CySEC) confirmed that it has wholly withdrawn the Cyprus Investment Firm (CIF) licenses of FF Simple and Smart Trades Investment Services Ltd.

Crypto Insider

Shining the Light in Crypto’s Dark Places

Something changed in regulators’ minds after the November crash of the FTX crypto exchange.

Executive Moves

Financial Commission Adds Sam Low to Dispute Resolution Committee

The Financial Commission (FinaCom PLC), a dispute resolution service that caters to the financial services industry, has appointed Sam Low as the newest member of its Dispute Resolution Committee (DRC).

Digital Assets, Uncategorized

De-facto owner of Bithumb exchange arrested in South Korea

South Korean prosecutors have arrested Kang Jong-Hyun, the anonymous chairman and owner of the country’s largest cryptocurrency exchange, Bithumb, on charges of embezzlement and stock manipulation.

Retail FX

Interactive Brokers volumes snap three-month losing streak

Electronic brokerage firm Interactive Brokers LLC (NASDAQ:IBKR) said its trading volumes rose in January, an indication that investor confidence in the financial markets is rebounding after having been fairly mixed over the past few months.

Digital Assets

VVF invests $5 million in Everscale, a potential Layer 2 solution for Venom blockchain

“For us, this is a strategic investment aimed at the technological development of projects and teams around technologies that we focus on and actively develop. In particular, we are talking about the Venom blockchain project and its ecosystem, which is planned to be launched soon and for which Everscale is a potential Layer 2 solution.”

Institutional FX

FXSpotStream volume ends string of declines on January rebound

Trading volumes on institutional FX platforms surged in January as traders increased their bets on central bankers’ policy with evidence mounting that inflation and economic growth are both losing momentum.

Industry News

DeFi firm Aurox launches SEC-compliant crowdfunding campaign on tZERO

“This is a great opportunity for us to raise capital from our community and the broader public on a leading fully regulated platform. We are confident that the tZERO Markets platform will provide us with the exposure and reach we need to attract a diverse investors to support our business growth.”

Industry News

Morgan Stanley launches ETF platform with six ESG-focused products by Calvert

“These new ETFs will resonate strongly with investors who seek competitive investment results while promoting positive change and supporting companies that are leaders in improving long-term shareholder value and societal outcomes.”

<