The SEC has charged Connecticut-based investment adviser Navy Capital Green Management LLC with making misrepresentations related to its anti-money-laundering (AML) procedures and for related compliance failures. Navy Capital agreed to settle the SEC’s charges and pay a $150,000 civil penalty.

Between at least October 2018 and January 2022, Navy Capital represented in offering and other documents, that were provided to prospective and existing investors in pooled investment vehicles, that it conducted specific AML due diligence on prospective investors and ongoing AML due diligence monitoring on existing investors.

In particular, the SEC said, Navy represented that it was going above and beyond and voluntarily complying with AML due diligence laws that did not apply to investment advisers, including the USA Patriot Act of 2001.

Opaque beneficial ownership

Navy Capital’s private fund investors included multiple foreign-based entities with opaque beneficial ownership and sources of wealth, at least one of which was owned by an individual publicly reported to be suspected of being connected to money-laundering activities.

Navy Capital distributed offering memoranda to prospective Feeder Fund investors representing that it had implemented an AML due diligence program “designed to guard against and identify money-laundering activities,” and would accept investments in the Feeder Fund, including additional investments from existing investors, only after confirming the identity of the investor and its principal beneficial owners.

Navy Capital also represented in the Feeder Fund offering documents that it would undertake “enhanced due diligence procedures” before accepting any investment if “high risk factors with respect to money laundering activities” were present, the SEC alleged.

Due diligence

The securities watchdog also said in its order that Navy Capital’s actual AML due diligence practices were materially inconsistent with its representations to investors in the pooled investment vehicles it managed, which led the company to violate SEC Rule 206(4)-8 of the Adviser’s Act. The SEC charged the company also with violating the Compliance Rule, SEC Rule 206(4)-7, which requires a registered investment adviser to adopt and implement written compliance policies and procedures reasonably designed to prevent violations of the Advisers Act.

“This case reinforces the fundamental duty of investment advisers to say what they do and do what they say,” said Tejal D Shah, Associate Regional Director of the SEC’s New York Regional Office. “Here, Navy Capital failed to follow the AML due diligence procedures that it said it would, thus misleading investors about the level of risk they were undertaking.”