Interest charge

SEC details excess management fees charged to two venture capital funds

The U.S. Securities and Exchange Commission (SEC) has laid out charges against a California-based exempt reporting adviser now that the company was charging excess management fees to two venture capital funds.

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According to the SEC order, Energy Innovation Capital Management, LLC’s (EIC) limited partnership agreements for the two venture capital funds allowed the company to charge management fees at certain times based on the invested capital of the funds in securities of individual portfolio companies and required EIC to reduce the fee base if certain events occur, such as the depreciation of those securities.

According to the SEC order, from January 16, 2020 to March 31, 2022, EIC overcharged management fees by making several errors in its favor, including failing to make adjustments to its management fee calculations for securities. of individual holding companies subject to writing. declines and inaccurately calculate management fees based on aggregate invested capital at the holding company level rather than at the individual holding company security level.

EIC reimbursed $678,681, plus interest, to the funds and their sponsors, while agreeing to settle the SEC’s costs by paying a penalty of $175,000.

Without admitting or denying the findings of the SEC, EIC agreed to cease and desist from committing or causing future violations of the provisions and to be censured in addition to the penalty.

“Venture fund advisers, while exempt from SEC registration, are not exempt from the anti-fraud provisions of the Investment Advisers Act,” said Dabney O’Riordan, Chief of the Asset Management Unit of the SEC’s Law Enforcement Division. “They must accurately calculate their management fees according to the fund documents. This resolution ensures that funds and investors are reimbursed and affirms the SEC’s commitment to focus on wrongdoing by all investment advisers.