American Infrastructure Funds LLC (AIM), a registered investment adviser based in Foster City, California, has agreed to a settlement with the SEC, in which AIM will pay over $1.6 million to resolve charges brought against the firm. These charges stem from several alleged breaches of its duties as an investment adviser to private funds. The SEC made this announcement on September 22, 2023.
According to the SEC’s order, AIM has been accused of various violations:
- Conflict of Interest in Accelerated Monitoring Fees: AIM is alleged to have failed in its fiduciary duty to the private funds it advised by not adequately disclosing a conflict of interest related to the receipt of accelerated monitoring fees from a portfolio company when that company was sold. The SEC’s order also found that AIM did not consider whether this fee acceleration was in the best interests of its clients.
- Transfer of Private Fund Assets: AIM is accused of breaching its fiduciary duty by transferring assets from private funds that were nearing the end of their term to a new private fund also under its management. This action reportedly resulted in locking up investor money for an extended period, at least another decade, without obtaining investor consent or providing existing investors with an option to exit. AIM is said to have failed to disclose its conflicts of interest in this transaction.
- Interfund Loan and Conflict of Interest: AIM is alleged to have breached its fiduciary duty by loaning money from one private fund it managed to a new private fund that was managed by an affiliated adviser. The SEC contends that AIM did not adequately disclose the conflict of interest in this transaction and did not conduct a proper assessment to determine if the loan was in the best interests of its clients.
Corey Schuster, Co-Chief of the SEC’s Enforcement Division’s Asset Management Unit, emphasized that this case underscores the SEC’s commitment to holding private fund advisers accountable when they do not act in the best interests of their clients, particularly regarding continuation funds. AIM’s failure to disclose conflicts of interest during asset transfers was highlighted as a significant breach.
AIM has agreed to the settlement without admitting or denying the SEC’s findings. As part of the settlement, AIM has consented to a cease-and-desist order and censure. Additionally, the firm will pay a penalty of $1.2 million, along with $445,460 in disgorgement and prejudgment interest, which will be distributed to investors affected by these alleged violations.
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