SEC accuses venture capital fund adviser of misleading investors

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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 met industry standards 2 and 20. ordinance concluded that these representations were misleading because they led some investors to believe that AVG would earn a 2% management fee in each year of its fund’s 10-year life and separately earn a 20% performance fee . Rather, according to the order, AVG’s typical practice was to assess management fees totaling 20% ​​of an investors fund’s investment (representing ten years of 2% annual management fees) when initial investment of investors.

The order revealed that Collins approved of AVG employees using industry standard 2 and 20 language and personally using it with fund investors and prospective investors. The order also included findings that AVG made inter-fund loans and fund transfers between funds and made loans to certain funds in violation of the funds’ respective operating agreements.

Venture capital fund advisers, like all fund advisers, must accurately outline their fees and adhere to fund agreements, said Adam S. Aderton, co-head of the divisions’ asset management unit. SEC Law Enforcement. Where appropriate, enforcement actions like this hold companies accountable when they fail to meet these obligations.

AVG and Collins Consented 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 had caused AVG violations. 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.

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