SEC accuses venture capital fund adviser of misleading investors | 2022-03-04 | Press Releases
Washington, DC–(Newsfile Corp. – March 4, 2022) – The Securities and Exchange Commission today accused venture capital fund adviser Alumni Ventures Group, LLC (AVG) of making misleading statements about its management fees and participating in inter-fund transactions in violation of the fund’s operating agreements. The SEC also accused AVG CEO Michael Collins of causing AVG breaches. To settle the charges, AVG repaid $4.7 million to the affected funds and agreed to pay a $700,000 penalty, while Collins agreed to pay a $100,000 penalty.
According to the SEC order, AVG’s website and other marketing communications stated that its management fees for the venture capital funds it managed were “industry standards” 2 and 20. ’ ” The order found that these representations were misleading because they led some investors to believe that AVG would earn a two percent management fee in each year of its funds’ 10-year term and separately earn a performance fee of 20%. According to the order, AVG’s usual practice was instead to assess management fees totaling 20% of an investor’s fund investment (representing ten years of 2% annual management fees) when initial investment in the investor’s fund.
The order revealed that Collins approved of AVG employees’ use of “industry standard ‘2 and 20′” language and personally used it with fund investors and potential investors. order also included findings that AVG made interfund loans and fund transfers between funds and made loans to certain funds in violation of the funds’ respective operating agreements.
“Venture fund advisors, like all fund advisors, must accurately describe their fees and respect the funds’ agreements,” said Adam S. Aderton, co-head of the SEC’s Enforcement Division Asset Management Unit. “Where appropriate, enforcement actions like this hold companies accountable when they fail to meet these obligations.”
AVG and Collins Consent to Entry of SEC Order Finding 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 infractions. Without admitting or denying the SEC’s findings, AVG and Collins agreed to a cease and desist order, AVG agreed to a censorship and to pay a $700,000 fine, and Collins agreed to pay a $100 fine. $000.
The SEC investigation was led by Luke Pazicky and Michael Moran, and overseen by David Becker, all in the Enforcement division’s asset management unit. The SEC appreciates the assistance of the New Hampshire Bureau of Securities Regulation and the Massachusetts Securities Division.