On September 2, 2015, the SEC settled enforcement proceedings brought against Taberna Capital Management LLC (“Taberna”), an investment advisory firm, based on alleged violations that Taberna had retained certain fees (known as “exchange fees”) it charged in connection with restructuring transactions undertaken between Taberna’s collateralized debt obligation (“CDO”) clients and the issuers of the underlying obligations in the CDOs’ portfolios. According to the SEC order, the exchange fees should have been paid to the CDOs, and Taberna was not permitted to retain the exchange fees as part of its compensation under the applicable CDO governing documents. In its order, the SEC determined that Taberna did not disclose to the investors in the CDOs that it was retaining the exchange fees. The SEC also found that Taberna had failed to disclose the conflicts of interest raised by its retention of the exchange fees, and falsely and misleadingly described Taberna’s compensation for managing the CDOs in its Form ADV. In addition, the SEC charged Taberna’s former managing director and former chief operating officer for their roles in the alleged misconduct.
As part of the settlement, Taberna agreed to pay a disgorgement of $13 million, prejudgment interest of $2 million and a civil penalty of $6.5 million. Taberna also agreed that it would not serve as an investment adviser for three years. Taberna’s former managing director and former chief operating officer each agreed to pay a penalty ($100,000 and $75,000, respectively), and to be barred from the securities industry (for at least five years and two years, respectively).