SEC issues charges on Alumni Ventures Group for misleading marketing fees

The Securities and Exchange Commission has charged venture capital adviser Alumni Ventures Group, LLC (AVG) for making misleading statements regarding its management fees. SEC also found that the company engaged in inter-fund transactions in breach of fund operating agreements.

AVG’s CEO, Michael Collin was also charged with causing AVG’s violations. AVG repaid $4.7 million to affected funds and agreed to pay a $700,000 penalty to settled the charges. Collins has agreed to pay $100,000 penalty.

The US regulator stated that AVG’s website and other marketing communications lead investors to believe that the fee for the venture capital funds that it managed was the “industry standard ‘2 and 20.’” According to SEC, this is misleading because it has led some investors to believe that AVG would collect a 2% management fee during each year of its funds’ 10-year term, and separately collect a 20% performance fee. The regulator found that AVG’s typical practice was instead to assess management fees of 20% of an investor’s fund investment (representing ten years’ of 2% annual management fees) upon the investor’s initial fund investment.

SEC penalty, fine

SEC pointed out that Collins approved of AVG employees using the “industry standard ‘2 and 20’” language. He personally used the same language with fund investors. SEC also found that AVG made inter-fund loans and cash transfers between funds and made loans to certain funds which is in violation of the funds’ respective operating agreements.

Adam S. Aderton, Co-Chief of the SEC Enforcement Division’s Asset Management Unit, said:

Venture capital fund advisers, like all advisers to funds, must accurately describe their fees and abide by the funds’ agreements. When appropriate, enforcement actions like this one hold firms accountable when they fail to meet these obligations.

AVG and Collins did not admit nor denied SEC’s findings, but they agreed to a cease-and-desist order. AVG agreed to pay a $700,000 penalty, and Collins agreed to pay a $100,000.

Earlier in January, SEC charged former UBS financial adviser, German Nino, with stealing $5.8 million.

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