SEC Charges Florida-Based Private Fund Adviser for Disclosure and Approval Failures Concerning Related Party Transactions

ADMINISTRATIVE PROCEEDING
File No. 3-22044

September 3, 2024 - The Securities and Exchange Commission today announced settled charges against registered investment adviser Colony Capital Investment Advisors, LLC, for breaches of its fiduciary duty relating to Colony's failure to follow certain contractually agreed procedures governing the timely disclosure of and consent to expenses that Colony allocated to eight private real estate investment funds it managed.

According to the order, Colony allocated expenses for services provided by Colony's affiliates to these private funds. Under approximately 40 agreements between these private funds and Colony affiliates, the Colony affiliates performed specified services for the funds, including loan servicing for debt portfolios held by the funds, as well as certain administrative and management services. The order finds that from at least 2017 to 2021, Colony failed to provide timely disclosures to limited partners, and to obtain the required approvals from the limited partnership advisory committees ("LPACs") or majority-in-interest of limited partners, with respect to these affiliate transactions as required by these agreements. In addition, in 2020, Colony failed to disclose to the LPAC of one fund certain expenses incurred by that fund in affiliate transactions that occurred during the same fiscal year as the expenses were charged.

The SEC's order finds that Colony violated the antifraud and compliance provisions of Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rules 206(4)-8 and 206(4)-7 thereunder. Without admitting or denying the findings, Colony consented to a cease-and-desist order and a censure and agreed to pay a civil penalty of $350,000.

The SEC's investigation was conducted by Adam Schneir and supervised by Nikolay V. Vydashenko, Andrew B. Dean, and Corey Schuster, all of the Enforcement Division's Asset Management Unit.  Brian Fitzpatrick, an Asset Management Unit industry specialist, assisted with the investigation. The examination that led to the investigation was conducted by Sang Lee, Kent Woo, Joshua Bauder, and Nina Freedman, all in the Los Angeles Regional Office.