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.
