A New York-based private advisor is facing a multiple-count fraud case, identifying the perils of disciplined pre-IPO marketing.
On August 10, Adit Ventures Management, its CEO Eric Munson, and three affiliated GPs had charges filed against them by the US regulator for an alleged multi-year scheme into false claims made to investors, granting apparent access to pre-IPO stakes in companies including Klarna and SpaceX.
According to the complaint, the fund misrepresented its holdings and solicited capital using investor’s money; taking undisclosed loans from funds, marking up pre-IPO shares, selling them to client funds without required consent, then charging millions in unauthorised “acquisition fees.”
Other allegations cite that Adit Ventures failed to register as an investment advisor, despite acting like one for years.
The defendants have not admitted the SEC complaint’s allegations, but consented to a settlement: the entry of a judgement (subject to court approval), a permanent injunction, a paid disgorgement with prejudgement interest and a civil penalty.
CEO Munson has also agreed to an upcoming industry associational bar, with the right to apply for reentry after three years.
So, what does this mean for fund marketers?
This is a fairly extreme case that goes well beyond a mis-communicated email disclosure. The actual fundraising pitch was fabricated, and that whole misrepresentation followed to solicit and over-charge investors through to the end.
It outlines how the SEC’s Asset Management Unit is tightening enforcement on a part of the industry that’s been marketing access to desirable pre-IPO names for a while: hot-topic “trophy” companies that are a selling point in their own right. Now, any claims made verbally (such as on calls or in meetings) are privy to enforcement in much the same way as claims made in written materials such as pitch decks.
All performance claims require the same substantive evidence, no matter if a fund’s portfolio holding is a headline act. The ‘story’ of a marketable company name is only fine if IR and marketing teams can confirm a claim is current, well documented and compliant.
Capital-chasing can lead to perilous waters, and firms that do market vehicles around illiquid, hard-to-price pre-IPO shares should expect heated due diligence from regulators and LPs who are placing greater focus on transparent valuation methodologies and fee structures.
Source
U.S. Securities and Exchange Commission, SEC Charges Private Fund Adviser Adit Ventures Management, Its CEO and Affiliated General Partners in Alleged Fraud
