The SEC charged Michael R. Donnell with participating in an improper referral arrangement. According to the SEC, from March 2002 until his termination in March 2004, Donnell was a vice president of Mercantile Capital Advisors, Inc., a registered investment adviser. Mercantile Capital Advisors managed a "fund of hedge funds" registered investment company called the Mercantile Fund. Donnell and his supervisor were responsible for finding a sub-adviser to manage the Mercantile Fund's portfolio. Donnell recommended hiring a sub-adviser which he knew had promised to pay a referral fee to one of Donnell's immediate relatives, if the sub-adviser was retained by the Mercantile Fund. Based in part on Donnell's recommendation, the Mercantile Fund, according to the SEC, retained the sub-adviser which in turn made good on its promise and began making regular referral fee payments to Donnell's relative. The SEC found that the payments created a conflict of interest, and Donnell violated the securities lawes because he did not disclose the conflict or the payments to anyone at Mercantile Capital Advisors or to the board of directors of the Mercantile Fund.

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