SEC charges adviser over conflicted loans and failure to disclose key information in LP asset purchase.

Summary:

• On September 9, 2025, the Securities and Exchange Commission (SEC) filed a case in the U.S. District Court for Colorado against an investment manager, alleging negligent misconduct arising from conflicted related-party transactions. ⁽¹⁾
• The allegations centered on: (1) Related-party loans made at below-market interest rates; (2) A repurchase transaction where the manager bought LP interests from investors without disclosing favorable information that would have influenced value; (3) Misrepresentations in marketing materials.

Allegations and Conduct:

• Related-Party Loans:
  • The manager caused its fund clients to make loans both to the manager and to other fund clients for short-term liquidity needs.
  • The Limited Partnership Agreement (LPA) required affiliated transactions to be “on terms no less favorable” than those generally available in comparable third-party transactions.
  • Despite this, the related party loans carried interest rates of 0–5%, while comparable third-party loans charged higher rates.
• Purchase of LP interests:
  • The manager proposed to buy certain fund interests from limited partners and provided them performance, operations, and valuation data on the portfolio.
  • However, it failed to disclose key information, including:
    • The buyer was the investment manager itself, not a third party.
    • A pending refinancing would reduce risk and cost of capital.
    • Broker valuations indicated materially higher pricing.
• Marketing Misstatements:
  • Investor marketing decks inaccurately represented:
    • That a certain fund had been audited.
    • The assets under management of the strategy.
    • The nature of investment strategy itself.

Takeaways:

• Related-Party Transaction Benchmarking:  The SEC views related-party transactions as high-risk conflicts and closely scrutinizes both disclosure and benchmarking. Importantly, benchmarking is required not only when disclosures specify it, but also when disclosures are silent, given the adviser’s fiduciary duties.
• Asset Repurchases & Continuation Funds: This case highlights the risks of inadvertent omissions in adviser-led asset purchases and continuation funds. When an adviser has a potential conflict—such as purchasing assets from investors or benefiting from additional fees—it must disclose all conflicts of interest and any material positive information that could affect pricing. This obligation applies even if the transaction has been approved by LPACs or directly by investors. The same standard applies when a third-party valuation agent is involved—key information must be provided to the valuation agent to ensure an informed assessment.
• SEC Enforcement Priorities: The case reflects the SEC’s continued focus on private fund advisers and its willingness to pursue enforcement actions involving conflicts of interest, even when the facts are complex.  It also demonstrates the willingness of the SEC to pursue pure negligence based cases.

_{(1) Civil Action No.: 25-cv-02821; UNITED STATES SECURITIES AND EXCHANGE COMMISSION vs. VUKOTA CAPITAL MANAGEMENT, LLC, VCM GLOBAL ASSET MANAGEMENT LTD., AND TOMISLAV VUKOTA}