Exempt reporting advisers have accounted for less than one-third of the SEC’s cases against private funds in the past five years, but they make up exactly half of the cases that have graduated to federal criminal courts, affiliate title RCW‘s analysis shows.

The Commission filed at least 71 enforcement actions against private fund advisers or their principals between fiscal 2016 and fiscal 2021, records show. Twenty-two of those cases came against Reg D firms. But of the 18 cases where federal prosecutors also filed criminal charges, nine of them involved exempt reporting advisers, SEC and public records show.

SEC Enforcement Director Gurbir Grewal and his staff have made clear that they think private fund advisers haven’t gotten enough attention from regulators. Meanwhile, SEC Chairman Gary Gensler has made Reg D one of his top reform priorities. The Chairman has long held that private funds—exempt and registered—are too private, their fees and conflicts hidden even from sophisticated investors (see related story, page X).


The Commission’s own records should give Gensler and Grewal plenty with which to work. The most common problem for Reg D advisers was false or misleading statements or marketing. At least 20 different SEC actions mentioned it. Next up was misappropriation (nine cases), followed by conflicts of interest (four) and fees or expenses (three), data show.

Registered private funds were a bit more diverse in their troubles but they struggled the most with registration, SEC records show. At least 17 different firms were written up for either failing to register properly or to follow registration rules properly. The curve was thrown off here by a single date on the calendar: On June 1, 2018, the Commission announced 13 separate settlements with private fund advisers for failing to file their Forms PF (RCW, Feb. 21, 2019).

The next most common problems for registered private fund advisers were fees or expenses (eight cases), valuation (seven), conflicts of interest (five) and either insider trading or failing to protect material, non-public information from seeping out (four cases), SEC records show. All four of those issues were at the center of the Commission’s exam priorities this year. Gensler is weighing new disclosure rules that he says will cover all four areas (RCW, Aug. 21, 2021).

Rich fund, poor fund

As you might expect, registered funds against whom the Commission brought cases were much larger than their exempt brethren. The median registered adviser subject to an SEC enforcement action was just above $513 million. The median Reg D fund was just under $48 million, SEC records show.

The largest fund advisers to face an enforcement action were Apollo Management ($170B in AUM; settled accusations over fees and supervision in August 2016), followed by Ares Management ($149B in AUM; settled MNPI accusations last year) and Deerfield Management Company ($6.4B in AUM; settled an MNPI case in August 2017).

Large funds weren’t spared the SEC’s baleful eye but smaller funds were much more likely to face criminal prosecution, the data show. Two of Deerfield’s partners and two more junior executives, for instance, were convicted on criminal insider trading charges in 2018, but the firm is an outlier amongst the accused. The median AUM of firms caught up in criminal cases was a little more than $104 million, SEC records show.

The smallest fund prosecuted in either civil or criminal court was MSMB Healtchare Management, founded by “Pharma Bro” Martin Skrelli. That firm had about $1,000 when regulators brought their misappropriation-and-false statements case in December 2015.

PE versus hedge

There was not an appreciable difference between private equity or hedge funds in civil cases brought by the SEC, the data show. Thirty-four of the firms that were subject to a Commission enforcement were hedge fund advisers, 29 of them private equity advisers.

Four venture capital funds got themselves caught in the SEC’s wringer, followed by two SPACs—Rose Park Advisors ($551M in AUM; settled Form PF accusations in 2018) and Stable Road Acquisition Company ($175M in AUM; settled false/misleading statements accusations this year)—two firms whose cases involved both hedge and private equity funds and one family office (Cannel Capital, $532M in AUM; settled MNPI accusations last year).

On the criminal side, though, hedge funds had the advantage. Ten of the 18 criminal cases involved hedge fund advisers. Private equity firms were involved in six and venture capital advisers the other two, records show.