Regulatory Forum

The SEC charged registered investment adviser, Macellum Advisors, LP, that advised a series of single-security pooled investment vehicles (the “Funds” or “Macellum Funds”) with failing to disclose payments Macellum affiliates received from third-party investment advisers and the resulting conflicts of interest. While Macellum stated in Fund formation documents and various disclosure documents that it “may” or “could” engage in outside activities and other conflicted transactions, the SEC faulted the firm for not specifically disclosing the extensive Consulting Agreements it entered into, or compensation received from the Outside Entities in connection with its activist campaigns. Due to the firm’s cooperation and prompt remedial action taken, the penalty in the case was limited to $75,000.

The SEC charged Marathon Asset Management, L.P. with failing to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse of material nonpublic information (MNPI) related to its participation on ad hoc creditors’ committees. While Marathon had established Insider Trading and Information Barrier policies and procedures in place, as well as MNPI procedures, the SEC faulted the firm for not effectively monitoring or supervising employees to effectively address the risk of receiving or misusing MNPI during participation on ad hoc creditors’ committees. Marathon agreed to pay a $1.5 million civil penalty.

In another off-channel communication enforcement sweep, the SEC charged twelve firms, including investment advisers and broker-dealers, with failures to maintain electronic communications. The sweep resulted in civil penalties of more than $88 million ranging from $35 million against two of the largest firms to $0 against one firm that conducted an internal investigation, uncovered its own violations, and self-reported to the SEC.

The SEC brought charges against Texas-based registered investment adviser, Atom Investors LP, for its failure to maintain and preserve off-channel communications in violation of the recordkeeping provisions of the federal securities laws. However, the SEC did not impose a penalty because Atom Investors self-reported the conduct, promptly remediated the violations, and provided substantial cooperation to Commission staff in an investigation of another entity.

The SEC announced charges against private equity and venture capital fund manager, Closed Loop Partners, LLC, for failing to properly disclose and gain consent for certain client loan transactions involving conflicts of interest. Closed Loop was further charged with violations of the Custody Rule 206(4)-2 of the Investment Advisers Act for failing to engage an independent, PCAOB-registered accounting firm on a timely basis to conduct an annual audit of the financial statements for certain co-investment vehicles and a fund-of-one. Because the firm did not satisfy the requirements of the audited financial provision of the Custody Rule, Closed Loop was required to comply with other provisions of the rule, which it failed to do. The firm consented to a $250,000 penalty.

Core is excited to announce our partnership with Standish Management, a global provider of specialized fund administration services for Managers and General Partners of Private Equity Funds, including Buyout, Venture Capital, Energy/Infrastructure, Real Estate and Fund-of-Funds. We are excited to have a partner in Standish who shares our values and is similarly focused on providing exceptional service. Standish is now the majority owner of Core, which will be known as Standish Compliance Services going forward.