The Securities and Exchange Commission has charged venture capital fund adviser Alumni Ventures Group, LLC (AVG) and its CEO with making misleading statements about its management fees and making transactions that violated its operating agreements.
In a Friday (March 4) news release, the SEC said it had settled the charges, with AVG repaying $4.7 million to affected funds as well as a $700,000 penalty, and CEO Michael Collins agreed to pay a $100,000 penalty.
According to the SEC, AVG’s website and marketing communications said its management fee for the funds that it managed was the “industry standard ‘2 and 20.’” However, the commission said this was misleading because they led some investors to believe AVG would take in a 2% management fee during each year of the fund’s 10-year term as well as a separate 20% performance fee.
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In reality, Manchester, N.H.-based AVG would typically “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 SEC said.
In addition, the SEC said its investigation found Collins approved of employees using the “industry standard ‘2 and 20’” language and used it himself with fund investors and prospective investors. The commission said it also found that AVG made interfund loans and cash transfers between funds and made loans in violation of the funds’ respective operating agreements.
“Venture capital fund advisers, like all advisers to funds, must accurately describe their fees and abide by the funds’ agreements,” said Adam S. Aderton, co-chief of the SEC Enforcement Division’s Asset Management Unit. “When appropriate, enforcement actions like this one hold firms accountable when they fail to meet these obligations.”
AVG and Collins admitted no wrongdoing, but agreed to a cease-and-desist order and censure, and to pay their penalties.
Read more: Biden Administration Looks for Private Equity, Hedge Fund Transparency
Last month, the SEC proposed a multi-pronged rule to improve transparency for investors, requiring private equity funds to issue quarterly statements that discuss fees, performance and other details.
The commission also instituted a rule that would limit preferential treatment for some investors, making it so additional disclosures might get curbed. There would also be a yearly audit of private funds, with rules to prevent funds from engaging in some conflicts of interest.
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