On March 4, 2022, the United States Securities and Exchange Commission (SEC) accused venture capital fund adviser Alumni Ventures Group, LLC (AVG) and its CEO, Michael Collins, of making misleading statements about its management fees to venture capital fund investors and for engaging in inter-fund lending and fund transfers in violation of fund operating agreements. According to the SEC order, AVG’s misrepresentations regarding management fees included telling investors that AVG was charging an “industry standard” 2 and 20″ management fee”, which some investors interpreted as a 2.0% annual fee, whereas AVG actually charged investors 20.0% when they made their initial investment, representing 2.0% per annum over the funds’ planned 10-year life. In accordance with the administrative decree. which the SEC, AVG and Collins settled concurrently, AVG refunded $4.7 million to the affected funds and paid a $700,000 penalty, and Collins paid a $100,000 penalty. A copy of the SEC order can be found here.
The SEC action can be seen as a continuation of Gary Gensler SEC’s militant stance toward fund and fund adviser compliance, both with respect to funds and advisers registered under the 1940 investment firms and investment advisers and those exempt from registration. See, SEC Proposes New Rules to Protect Private Fund Investors, February 14, 2022; and SEC Charges Three Companies $539 Million for Illegal General Solicitation, September 20, 2021, both available for download at Kurtin PLLC White Papers and Notices. The often flippant attitude of fund promoters and advisers in recent years towards their fund formation offering documents and the day-to-day compliance of dealings with investors and potential investors is firmly on the mark. he SEC’s radar screen, and sanctions and appeals against disgorgement of earnings have teeth. Compliance with securities laws is a cost of doing business.