A Boston-based private fund advisor mislabeled one of its drilling assets in a marketing brochure and will now be $1 million lighter for it.
In its marketing for one of its funds, Old Ironsides Energy listed a longstanding and well-performing oil and gas investment as an early-stage direct drilling prospect. In fact, the investment fund had been created while Ironsides’ founding members were working for a previous company, the SEC said in a settlement agreement dated April 17.
According to Ironsides’ website, its four founders, Scott Carson, Greg Morzano, Sean O’Neill and Daniel Rioux, all worked at Liberty Energy Holdings, also based in Boston, until the four spun off Old Ironsides in 2013.
Bending the curve
The Commission says the men had brought a portfolio with them to Old Ironsides of about 420 oil and gas investments. The portfolios included direct drilling, private equity and private fund investments. The “vast majority” of those assets, though, in both number and size, were the direct drilling investments, the SEC says.
In advertising one of their private funds in the year after the firm was founded, Old Ironsides marketers told 120 prospective investors that it would focus on early-stage and developmental-stage direct drilling investments, and wouldn’t invest in any other funds. To sweeten their offer, the materials offered up a track record that purportedly showed how well its direct drilling investments were doing.
But part of the track record was “a private fund investment made in 2002 that had strong, positive performance” but that didn’t fit the definition of direct drilling investment. That private fund was returning nearly 11 times its initial investments, far better than anything else Old Ironsides was offering, the SEC says.
Shot across the bow?
In addition to the fine, Old Ironsides was also censured.
Old Ironsides CCO Andrea Haney declined to discuss the case. She issued a statement that said, “We welcome the opportunity to put this matter behind us and look forward to focusing all of our efforts on generating returns for our investors.”
But readers will be forgiven if they read the Old Ironsides case as a shot across private funds’ bows. The Commission has promised to overhaul the decades old advertising rule, and experts tell us it’s likely to create a lot more risk, and a lot more work, for private fund advisors.
This article first appeared in sister publication RCW