The Securities and Exchange Commission today announced that American Infrastructure Funds LLC (AIM), a Foster City, California-based registered investment adviser to private funds, agreed to pay more than $1.6 million to settle charges resulting from its acceleration of portfolio company monitoring fees, for transferring a private fund asset from funds nearing the end of their term to a new fund, and for loaning money from one private fund to another private fund advised by an affiliate. 

According to the SEC’s order, AIM breached its fiduciary duty to private funds that it advised by failing to adequately disclose its conflict of interest in receiving accelerated monitoring fees paid by a portfolio company when that portfolio company was sold. The SEC’s order also finds that AIM violated its duty of care by failing to consider whether the fee acceleration was in its clients’ best interest. Additionally, according to the SEC’s order, AIM breached its fiduciary duty by transferring certain expiring funds’ assets to a new private fund it also advised and, by doing so, locked up investor money for at least an additional decade without obtaining investor consent, without providing existing investors an option to exit, and without disclosing AIM’s conflicts of interest in the transaction. The SEC’s order finds that AIM also breached its fiduciary duty by not adequately disclosing its conflict of interest when it loaned money from one private fund it managed to a new private fund managed by an affiliated adviser and by failing to undertake a process to determine if the loan was in its clients’ best interest.

“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,” said Corey Schuster, Co-Chief of the Enforcement Division’s Asset Management Unit. “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 finds that AIM violated antifraud and compliance provisions of the Advisers Act.   Without admitting or denying the SEC’s findings, AIM agreed to a cease-and-desist order and censure and to pay a $1.2 million penalty as well as $445,460 in disgorgement and prejudgment interest to investors.

The SEC’s investigation was conducted by Rahul Kolhatkar and Ronnie Lasky under the supervision of Jeremy Pendrey, Mr. Schuster, and Andrew Dean with the Enforcement Division’s Asset Management Unit, with the assistance of staff from the Division of Examinations' Private Funds Unit, including Daniel Faigus, Tracey Bonner, Jennifer Conwell, and Jennifer Duggins.