PF advisor charged with misusing $1m in fund assets

A private fund isn't a personal fund and the SEC has driven the point home by barring a Maryland man for phony travel reimbursements and taking a seven-figure loan to cover a personal investment.

A private fund isn’t a personal fund, and the SEC has just driven the point home by barring a Maryland investment advisor for helping himself to more than $1 million in cash from his firm.

Gautam Prakash’s fund, Monsoon Capital, is also censured and will have to come up with $100,000 to settle the accusations that Prakash skimmed cash through phony travel reimbursements and took out a seven-figure loan to cover a personal investment, the Commission said in a six-page settlement notice published April 30.

At its peak, Monsoon claimed to have more than $300 million in assets invested in Indian real estate and infrastructure funds, including one Prakash called the Monsoon India Dynamic Alpha Fund, which he nicknamed “MIDAS.”

Impressive pedigree

Prakash, 50, of Chevy Chase, Maryland, had an impressive pedigree. A 1991 Yale honors graduate, he had been a venture capitalist and partner at Bessemer Venture Partners from 1993 until 2001 and had been an advisor to ChrysCapital, a private equity fund based in New Delhi, until 2004. The following year, he founded Monsoon, serving as its CEO, senior managing director and chief compliance officer.

According to the SEC settlement, Prakash began defrauding one of the funds he advised in 2015 with phony expense reports. As he made semi-annual trips to and from India, Prakash “routinely” booked refundable business class tickets on one airline while at the same time booking cheaper, non-refundable tickets on another airline. He’d cancel the more expensive refundable ticket but charge it to his fund expense account and pocket the difference. It netted him more than $44,000 over about two years, the SEC says.

The loan

In June 2017, Prakash borrowed $1 million from one of Monsoon’s funds to settle a trade in his personal account in India, the SEC says. He had a derivative investment that was going to expire that summer and wanted to buy out his counterpart ahead of the deadline.

“Prakash originally attempted to transfer the needed monies from his Monsoon account in the United States to his personal account in India; however, a transfer error occurred, and the monies were not available in time to settle the trade in India,” the Commission said. “Rather than forgo the trade, Prakash instead decided to borrow $1 million in cash from [a fund’s] bank account to fund the transaction.”

To do so, he ignored warnings from three colleagues at Monsoon, who told him the loan would breach his fiduciary duty to the fund. Prakash did it anyway, the SEC says.

He returned the money with interest five days later, but the damage had been done. Monsoon disclosed his travel scam and his loan in 2018. The Commission says it “considered remedial action undertaken” when meting out Prakash’s and Monsoon’s discipline, but the agency doesn’t elaborate.

Private funds spotlight

The Commission has now published settlements with five separate private funds advisors in less than two weeks. On the same day it settled with Monsoon and Prakash, the SEC announced that it had also settled with Everest Capital founder Marko Dimitrijevic.

OCIE Director Pete Driscoll has promised a risk alert on the top findings of private funds exams by the end of the year, so it’s possible we’re getting a frenetic curtain-raiser for that alert.

For the year, the SEC has announced new settlements with seven different private fund advisors and one with a former hedge fund analyst. The Commission has filed a separate fraud complaint in federal court in Florida against Michael Scott Williams and the Kinetic Investment Group. That case is pending.