SEC Charges New York Investment Advisers with Entering Into Prohibited Transactions, Other Violations
Sept. 13, 2019
File No. 3-19452
September 13, 2019 - The Securities and Exchange Commission today announced settled charges against two investment advisers for repeatedly entering into prohibited transactions, omitting key information in an application submitted to the Commission, and then continuing to enter into prohibited transactions contrary to the limitations set forth in a Commission order.
According to the SEC's Order, beginning in December 2012 and continuing through December 2014, Respondents Garrison Investment Group LP ("GIG") and Garrison Capital Advisers LLC ("GCA" and collectively, "Respondents"), effected nine transactions involving GCA's business development company client, Garrison Capital, Inc. ("GARS"), GIG's private fund clients, and third party co-investors. These transactions were prohibited under specific provisions of the Investment Company Act. On December 11, 2014, Respondents submitted an application with the SEC asking that GARS be allowed to participate in similar future transactions. The Order finds that Respondents' application failed to (1) identify all of Respondents' affiliates that would participate in the transactions and (2) disclose that GIG would receive compensation from the transactions. On January 12, 2015, the SEC issued an order (the "Co-Invest Order") allowing GARS to participate in joint transactions under specific conditions. The SEC's Order finds, however, that from January 2015 through June 2016, Respondents effected an additional seven loan transactions that did not comply with the SEC's Co-Invest Order due to the participation of parties not listed in the application and GIG's receipt of compensation in connection with four of the transactions. In addition, the Order finds that GIG improperly maintained custody of client assets when it held client funds in a subsidiary's bank account along with GIG's compensation from the joint transactions, and did not subject the subsidiary to a surprise exam by an independent public accountant.
The Order finds that the Respondents willfully violated Sections 34(b) and 57(a)of the Investment Company Act of 1940 and Rule 17d-1 thereunder. In addition, GIG willfully violated Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-2 thereunder (the "Custody Rule"). Without admitting or denying the SEC's findings, Respondents consented to a cease-and-desist order, a censure, and agreed to pay a civil penalty of $250,000.
The SEC's investigation was conducted by Stephen B. Holden with assistance from Brian Fitzpatrick, and was supervised by Panayiota K. Bougiamas of the Division of Enforcement, Asset Management Unit in the New York Regional Office.