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SEC Brings Enforcement Action Against Investment Advisor For Allegedly Failing To Disclose Conflicts Of Interest In SPACs Into Which It Invested Client Funds
09/15/2022On September 6, 2022, the Securities and Exchange Commission announced that New York-based, registered investment advisor Perceptive Advisors LLC (“Investment Advisor”) had agreed to pay a $1.5 million civil penalty for allegedly failing to disclose conflicts of interest regarding ownership of its personnel in sponsors of special purpose acquisition companies (SPACs). According to the SEC, the Investment Advisor used private client funds to facilitate transactions benefitting SPACs in which the Investment Advisor’s personnel and other clients had financial interests but failed to disclose the alleged conflicts resulting from those interests.
The Investment Advisor provides investment advisory services to pooled investment vehicles, including SPACs. The SEC alleged that beginning in 2018, the Investment Advisor formed four SPACs, three of which had sponsors owned by employees at the Investment Advisor. The SEC claimed, however, that the Investment Advisor failed to disclose resulting conflicts of interest to its clients and made certain material misstatements and omissions by suggesting that the SPACs were fund sponsored. The SEC concluded that this compromised the Investment Advisor’s obligation to render disinterested advice to its clients, as the conflicted persons allegedly had financial incentives to direct private client funds to these SPAC-related transactions.
The SEC found that the Investment Advisor thus committed willful violations of Section 206 of the Investment Advisers Act, which makes it unlawful for any investment adviser, directly or indirectly, to “engage in any transaction, practice or course of business which operates as a fraud or deceit upon any client or prospective client,” as well as Section 13(d) of the Securities Exchange Act of 1934 and Rule 13d-1, which require any person, including a group, that has acquired, directly or indirectly, beneficial ownership of more than five percent of a class of a registered equity security to file a statement with the SEC that discloses the identity of its members and the purpose of its acquisition. According to the SEC, the alleged violations stemmed from the Investment Advisor’s failure to adopt and implement written compliance policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder concerning the Investment Advisor personnel co-ownership of SPAC sponsors alongside advisory clients and investments in affiliated SPACs on behalf of the Investment Advisor’s advisory clients.
In announcing the settlement, the SEC commented that the action reflects its “continued effort to hold private fund advisers accountable when they fail to live up to their obligations under the Advisers Act.” It also more broadly reflects the SEC’s continued focus on SPACs and related potential conflicts.
