In a recent action (In the Matter of Matthew Crisp, Investment Adviser Act Release No. 3451), a partner of a SEC-registered investment adviser based in Chicago, Illinois, was barred from association and from serving as an officer or director of an investment adviser for taking advantage of a conflict of interest for his own personal gain.
According to the SEC, Matthew Crisp, while working as a partner of Adams Street Partners, LLC, secretly formed a private partnership to take advantage of a particular investment that the investment advisory firm would have placed with one or more private fund clients managed by the investment advisory firm. The SEC further alleges that Mr. Crisp not only garnered the investment opportunity for his own private fund over the interests of the adviser’s other clients but also concealed the fact from the other clients and to the other partners in Adams Street Partners. In addition, the SEC asserts that Mr. Crisp enriched himself with a payment of $150,000 during a transaction involving his private partnership, although the payment should have gone to Adams Street Partners. In total, the SEC charges that Mr. Crisp personally benefited by more than $2 million from his conduct, all at the expense of the registered investment adviser’s private fund clients and the adviser itself.
After Adams Street discovered Mr. Crisp’s misconduct, he was terminated. Adams Street then self-reported the matter to the SEC. Mr. Crisp has since paid Adams Street approximately $2.3 million, roughly equaling the amount he was enriched by his exploitation of his firm’s partners and other clients. The conduct by Mr. Crisp, according to the SEC, violated the “anti-fraud” provisions under Section 206 of the Investment Advisers Act of 1940, Section 206(4)-8, which makes it unlawful to act fraudulently with respect to investors of private funds, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
Mr. Crisp agreed to a bar from association with any broker, dealer, investment adviser, managed securities dealer, or adviser, and acting as an employee, officer, director, or member of an advisory board of an investment company or affiliated person of an investment adviser. Mr. Crisp has the right to apply for reentry into the industry after one year with the applicable self-regulatory organization or, if none, to the SEC. He also agreed to pay further disgorgement to Adams Street for distribution by Adams Street to certain of the private funds it manages.
Interestingly, Adams Street was not sanctioned either because the SEC found no wrongdoing on the part of Adams Street and/or that Adams Street self-reported the matter to the SEC.