In a recent enforcement action (In the matter of Equinox Fund Management, LLC, Release No. IA 4315, January 19, 2016), the SEC imposed sanctions against a Denver-based registered investment adviser for overcharging management fees and misleading investors about how it valued certain assets in a registered fund.

In order to settle the matter, the adviser agreed to refund investors $5.4 million in excessive management fees plus $600,000 in prejudgment interest. In addition, the adviser agreed to pay to the SEC a $400,000 penalty.

The series fund managed by the adviser is registered under the Securities Act of 1933, and as such, is filed as public registration statements with the SEC disclosing, among other things, that management fees were based upon the net asset value of each series of the fund. However, the SEC found that the adviser instead used the notional trading value of the assets (i.e., the total amount of assets invested including leverage). That method of calculation resulted in the adviser overcharging the fund $5.4 million in management fees over a seven year period. In addition, various periodic public reports filed with the SEC and provided to investors continued to disclose during this period that the method for valuating certain assets was checked by third party valuations. However, the third party valuations indicated that the adviser had valued such assets substantially higher than the third party valuations for the same assets.

The adviser faced violations of the anti-fraud provisions under the Securities Act of 1933 as a result of overcharging management fees and providing misleading material information to fund investors. 
In addition to the monetary penalties agreed to by the adviser, the adviser also agreed to be censured.