A New York-based private fund adviser has settled SEC charges that the firm didn’t provide its clients and investors with adequate information about conflicted SPAC investments. Perceptive Advisors failed to disclose conflicts of interest, made material misstatements and omissions and failed to adopt written P&Ps regarding its personnel’s ownership interest in SPAC sponsors and the firm’s practice of investing client assets in affiliated SPACs, the Commission claims.
Perceptive ($10.36B in RAUM) provides investment advisory services to pooled investment vehicles, including the Perceptive Life Sciences Master Fund, a private fund organized under the laws of the Cayman Islands. It was the formation of several SPACs and ownership structure that ultimately led to the settlement agreement.
The agreement states that in 2018, Perceptive formed a SPAC, the sponsor of which was 100% owned by the PLSM Fund. That SPAC consummated a business combination that closed on July 1, 2020.
The SEC notes that from February through August 2020, Perceptive formed three additional SPACs. But unlike the sponsor of the SPAC that Perceptive formed in 2018, ownership of the sponsors of the three subsequently formed SPACs was shared by five Perceptive supervised persons, along with the PLSM Fund.
Since the Perceptive personnel were entitled to receive a portion of the SPAC sponsor compensation, the Commission claims they had material conflicts of interest that could affect the advisory relationship between Perceptive and its advisory clients. These conflicts could cause the firm to render advice that was not disinterested, the agency adds. A key issue: Personnel had financial incentives to recommend the SPACs engage in business combinations, even if they were not necessarily in the best interests of one or more of Perceptive’s advisory clients.
Incentives for personnel
The SEC notes that Perceptive personnel also had incentives to cause the PLSM Fund to make SPAC-related investments that would help ensure the SPACs completed business combinations, such as by purchasing securities in related private investment in public equity transactions to assist with financing the business combinations. The Commission reports that in connection with two of the SPACs business combinations, Perceptive caused the PLSM Fund to participate in $85 million of PIPE transactions.
Required filings and disclosure further were an issue. The SEC found that Perceptive failed to timely file a required report on Schedule 13D and improperly acquired the beneficial ownership of additional common stock of a public company it was negotiating with during the period prior to filing a Schedule 13D.
The PLSM Fund board, fund investors, and prospects were unaware of the conflicts for a time. The SEC charges that Perceptive failed to make timely disclosure of its SPAC-related conflicts to the board of the PLSM Fund. And neither Perceptive’s Form ADV brochure nor the offering memoranda for the PLSM Fund “fully and fairly” disclosed the conflicts, the Commission claims. Certain material misstatements and omissions were made to investors and prospective investors in the PLSM Fund, the agency adds.
Under the settlement agreement, Perceptive has been censured and will pay a $1.5 million penalty.
The enforcement action “reflects the Commission’s continued effort to hold private fund advisers accountable when they fail to live up to their obligations under the Advisers Act,” said C. Dabney O’Riordan, chief of the Enforcement Division’s asset management unit.