SEC Charges Connecticut Hedge Fund Adviser for Breaches of Fiduciary Duties When Redeeming Two University Clients
Aug. 3, 2022
File No. 3-20944
August 3, 2022 - The Securities and Exchange Commission today announced settled charges against Deccan Value Investors LP, a Connecticut private fund investment adviser, and Vinit Bodas, Deccan’s founder and chief investment officer, for Deccan’s breaches of its fiduciary duties when handling redemptions for two university endowments. Deccan manages assets for some of the largest educational endowments in the world.
According to the SEC’s order, in 2019, two of Deccan’s largest investors and clients sought to fully redeem their investments, which together totaled nearly 18% of Deccan’s more than $3 billion in assets under management. The order finds that without full and fair disclosure to either university, Deccan did not seek to liquidate in a reasonable manner certain illiquid securities held by both clients. The Commission’s order finds that Deccan also made materially misleading statements and omissions to one of the redeeming university clients (“University Two”) in an effort to advantage Deccan’s non-redeeming clients and investors, which included Bodas and other Deccan partners. The SEC also found that Deccan unreasonably failed to disclose its intent to tie up nearly 13% of the cash in University Two’s account in an illiquid side-pocket in the weeks leading up to University Two’s final redemption and at a time when Deccan and University Two were negotiating a short-term extension of their investment advisory agreement.
According to the Commission’s order, Deccan also failed to retain text messages, as required by the Investment Advisers Act of 1940, including by virtue of Bodas on multiple occasions in 2019 and 2020, directing at least one Deccan officer to permanently delete their text messages. Finally, the Commission’s order finds that Deccan lacked adequate policies and procedures for record retention and client and investor redemptions.
The SEC’s order finds that Deccan willfully violated the antifraud, recordkeeping, and compliance provisions of Sections 206(2), 204(a) and Rule 204-2(a)(7) thereunder, and 206(4) and Rules 206(4)-7 and 206(4)-8 thereunder of the Investment Advisers Act of 1940, and that Bodas caused Deccan’s violations. Without admitting or denying the SEC’s findings, Deccan and Bodas consented to a cease-and-desist order and to a censure for Deccan and agreed to pay civil money penalties of $1,139,501 and $500,000, respectively. Deccan also agreed to certain undertakings including the retention of an independent compliance consultant.
The SEC’s investigation was conducted by David Neuman and Brian Fitzpatrick of the Enforcement Division’s Asset Management Unit and supervised by David Becker, also of the Asset Management Unit, and Melissa Robertson.