Private Equity Firm to Pay $7 Million in SEC Pay-to-Play Case
In a settled action commenced by the SEC, a private equity firm agreed to pay $7 Million in restitution and penalties for paying a solicitor to obtain investments from the New York State Common Retirement Fund. According to the SEC complaint, the firm paid undisclosed finder fees to Henry Morris and agreed to distribute a film called “Chooch” for the brother of New York State Comptroller David Loglisci. The SEC complaint alleges that the defendant did not disclose these quid pro quo payments to the Retirement Fund’s Investment Advisory Committee, although disclosures were made concerning payments to Morris’s broker-dealer.
OUR TAKE: Unregistered fund managers should note the following: (a) the SEC is requiring full disclosure of solicitation payments even though unregistered fund managers are not subject to Rule 206(4)-3’s disclosure requirements, (b) the SEC did not allege that the investors lost any money on the investments, and (c) the investor was a sophisticated institutional client.