American Infrastructure Funds LLC (AIM), a private equity fund adviser, has agreed to pay more than $1.6m to settle charges with the SEC over breaching its fiduciary duty to private funds. The charges result from the company’s acceleration of portfolio company monitoring fees, for transferring a private fund asset from funds nearing the end of their term to a new fund, and for loaning money from one private fund to another – which was advised by an affiliate.

According to the SEC’s order, AIM failed to adequately disclose its conflict of interest in receiving accelerated monitoring fees that were paid by a portfolio company after the portfolio company was sold. AIM also violated its duty of care by not considering whether the fee acceleration was in its clients’ best interest.

“AIM failed to disclose its conflicts of interest when it transferred a client’s asset to a new fund.”

Corey Schuster, Co-Chief of the Enforcement Division’s Asset Management Unit

The SEC also said that AIM breached its fiduciary duty by transferring certain expiring funds’ assets to a new fund without the owner’s consent. By doing so, AIM locked up investor money for at least an additional decade and didn’t provide an option to exit, nor did it disclose its own conflicts of interest in the transaction.

Loaned money without consent

AIM was also deemed to have breached its fiduciary duties by not properly disclosing its conflict of interest regarding loans, including failing to determine if the loans were in its clients’ best. The company was found loaning money from one private fund it managed – to a new private fund managed by an affiliated adviser.

“This case highlights our continued focus on holding private fund advisers responsible when they fail to act in their clients’ best interests, including with respect to continuation funds,” said Corey Schuster, Co-Chief of the Enforcement Division’s Asset Management Unit. “Among other breaches, AIM failed to disclose its conflicts of interest when it transferred a client’s asset to a new fund.”  

The SEC’s order also found that AIM violated antifraud and compliance provisions of the Advisers Act. Without admitting or denying the charges, AIM has agreed to a cease-and-desist order and censure, and will also pay a $1.2m penalty. AIM will also pay $445,460 in disgorgement and prejudgment interest to investors.