SEC Charges American Infrastructure Funds with Breach of Fiduciary Duty, Resulting in Over $1.6 Million Settlement
The Securities and Exchange Commission (SEC) has announced that American Infrastructure Funds LLC (AIM), a registered investment adviser to private funds based in Foster City, California, has agreed to pay over $1.6 million to settle charges related to breaches of its fiduciary duties.
According to the SEC's order, AIM was found to have violated its fiduciary duty to private funds under its advisement in several ways:
1. Acceleration of Portfolio Company Monitoring Fees: AIM failed to adequately disclose its conflict of interest in receiving accelerated monitoring fees from a portfolio company when that company was sold. This lack of disclosure compromised AIM's fiduciary duty to provide complete and accurate information to its clients regarding these fees.
2. Transferring Assets to a New Fund: AIM transferred assets from expiring funds to a new private fund it also managed. This action effectively locked up investor money for an extended period without obtaining the required investor consent. Furthermore, AIM failed to provide existing investors with an option to exit and did not adequately disclose its conflicts of interest in the transaction.
3. Loaning Money Between Private Funds: AIM loaned money from one private fund it managed to a new private fund managed by an affiliated adviser. This transaction, again, raised concerns about AIM's failure to disclose its conflict of interest and assess whether the loan was in its clients' best interests.
The SEC's order also noted AIM's violation of antifraud and compliance provisions of the Advisers Act. AIM neither admitted nor denied the SEC's findings but agreed to a cease-and-desist order and censure. Furthermore, AIM will pay a civil penalty of $1.2 million and disgorge $445,460 in addition to prejudgment interest, which will be returned to affected investors.
Corey Schuster, Co-Chief of the Enforcement Division's Asset Management Unit, commented on the case, stating, "This case highlights our continued focus on holding private fund advisers responsible when they fail to act in their clients’ best interests." He emphasized the importance of disclosure and transparency in ensuring that advisers fulfill their fiduciary duties, particularly in complex transactions such as the transfer of assets to new funds.
The settlement serves as a reminder of the SEC's commitment to safeguarding investors' interests and holding financial advisers accountable for any breaches of fiduciary duty or compliance violations.