SEC sanctions private equity manager over non-disclosure

Private equity fund manager Prime Group Holdings LLC will pay US$20.5 million in penalties and disgorgement to settle charges that it failed to disclose a conflict of interest.

The U.S. Securities and Exchange Commission (SEC) charged New York-based Prime Group for not properly disclosing that its real estate investment fund paid millions of dollars in fees to a real estate brokerage firm also owned by Prime’s CEO.

Those fees weren’t adequately disclosed in the fund’s offering materials, including its limited partnership agreement, private placement memorandum, and due diligence questionnaires, the SEC alleged.

“Funds, including those that invest in alternative asset classes, must ensure that their offering materials contain clear, accurate, and adequate disclosures,” said Osman Nawaz, chief of the SEC enforcement division’s complex financial instruments unit, in a release.

“In particular, information related to payments made to affiliates, and the potential conflicts of interest embedded in such arrangements, is critical to investors’ decisions,” he added.

The firm agreed to settle the charges without admitting or denying the allegations. Prime Group agreed to pay a US$6.5 million penalty and more than US$14 million in disgorgement and prejudgment interest to resolve the case.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.