SEC Charges Private Equity Fund Adviser American Infrastructure Funds for Breaching Its Duties

The Securities and Exchange Commission (SEC) has announced that American Infrastructure Funds LLC (AIM), a registered investment adviser based in Foster City, California, has reached a settlement in which it will pay over $1.6 million to resolve charges stemming from various violations. These violations include the acceleration of monitoring fees from portfolio companies, the transfer of a private fund asset from funds approaching the end of their term to a new fund, and the lending of money from one private fund to another private fund managed by an affiliate.

As detailed in the SEC’s order, AIM breached its fiduciary duty to the private funds it advised by failing to adequately disclose its conflict of interest when it received accelerated monitoring fees from a portfolio company upon its sale. Additionally, AIM violated its duty of care by not assessing whether the fee acceleration was in the best interest of its clients. The SEC’s order also notes that AIM breached its fiduciary duty by moving assets from certain expiring funds to a new private fund that it also advised. This action effectively locked up investor capital for an extended period of at least ten years, without obtaining investor consent, offering existing investors an exit option, or disclosing the conflicts of interest associated with the transaction. Furthermore, AIM failed to adequately disclose its conflict of interest when it extended a loan from one private fund under its management to a newly created private fund managed by an affiliated adviser. AIM also neglected to conduct a proper assessment to determine if the loan was in the best interest of its clients.

Corey Schuster, Co-Chief of the Enforcement Division’s Asset Management Unit, emphasized the SEC’s commitment to holding private fund advisers accountable when they fail to act in the best interests of their clients. He stated, “This case highlights our continued focus on holding private fund advisers responsible when they fail to act in their clients’ best interests, including with respect to continuation funds. Among other breaches, AIM failed to disclose its conflicts of interest when it transferred a client’s asset to a new fund.”

The SEC’s order determined that AIM violated antifraud and compliance provisions established by the Advisers Act. Without admitting or denying the SEC’s findings, AIM has consented to a cease-and-desist order and censure. Additionally, AIM will pay a financial penalty of $1.2 million, along with $445,460 in disgorgement and prejudgment interest to benefit the affected investors.