BDC Principal Ignored Investment Company Act Compliance Requirements
The SEC barred and fined the principal of a Business Development Company for failing to implement an adequate compliance program and several other violations of the Investment Company Act. The SEC charges the principal and the firm with significantly overvaluing portfolio securities in violation of the Investment Company Act and its own disclosed valuation policies. The SEC also alleges that the respondents failed to adopt an adequate compliance manual, complete annual compliance reviews, and appoint a Chief Compliance Officer. Other violations include filing misleading financial statements, failure to obtain a fidelity bond, issuing shares in exchange for property, and improper Board composition.
OUR TAKE: Alternative asset management sponsors (e.g. BDCs, private equity, hedge, fund-of-funds) that register funds pursuant to the Investment Company Act become subject to the full panoply of the its regulatory requirements. These requirements include a compliance program, specified corporate governance, limitations on affiliate transaction, and fair valuation. Call your neighborhood 1940 Act lawyer or compli-pro or risk fines and restrictions on your livelihood.