Weak Compliance Function Results in $3.1 Million Payment and Bar for Hedge Fund Sponsor
A hedge fund sponsor and its principals agreed to pay over $3.1 Million in penalties and disgorgement and agreed to an industry bar for making misrepresentations about principals investing in the funds. The SEC alleges that during a 2-year period, the firm consistently made misrepresentations on due diligence questionnaires and side letters about personal investing by firm principals in the funds. Among other charges, the SEC cited violations of the compliance rule (206(4)-7) because the firm did not adequately staff or resource the compliance functions and, as a result, failed to follow its own review procedures. The SEC charges that the firm utilized compliance personnel with little investment adviser regulatory experience and understaffed the function. The SEC noted that the firm corrected its misleading statements after hiring a qualified compliance officer.