Active Fintech VC, Alumni Venture Group, is Target of Administrative Action, Settles with SEC, as well as New Hampshire and Massachusetts

The Alumni Venture Group (AVG), previously operating as Launch Angels, has settled allegations leveled by the Securities and Exchange Commission (SEC) as well as securities regulators in both Massachusetts and New Hampshire. AVG is a Massachusetts LLC and its CEO Michael Collins is headquartered in New Hampshire.

AGG has been an active investor in many Fintechs, including blockchain firms. Its portfolio page is available here.  Fintechs listed on their portfolio page include names like Algorand, BlockFi, Circle, Securrency, Embedded Financial, and more.

AVG claims to be the most active venture investor in the US in 202o with over 900 portfolio companies and 7500+ (accredited) investors. Different funds include thematic approaches like Blockchain requiring a minimum investment of $25,000 to $50,000. AVG apparently had $425 million under management.

According to the SEC document, the administrative action relates to “materially misleading statements and improper transactions by AVG … “regarding its collection of management fees and effecting inter-fund loans and cash transfers and loans from AVG to funds it advised.”

Additionally, the SEC claims that “AVG made inter-fund loans and cash transfers between the funds, and made loans to certain funds. These transactions violated the funds’ respective operating agreements regarding commingling of investor assets, and breached AVG’s fiduciary duties to the funds.”

The documents filed by both Massachusetts and New Hampshire echo the SEC’s claims.

The New Hampshire Bureau of Securities explained in a release:

“Among the facts stated in the settlement document is that AVG and Collins misled investors by representing to them that the fee it charged to manage investment funds would be “the industry standard of 2 and 20” which according to the settlement document “is generally understood to mean a 2 percent management fee for ten years plus a 20% share in profits on any profitable investments.” In reality, however, AVG’s actual practice was to assess and collect 10 years’ worth of the 2% annual management fee upfront at the time of the investor’s initial contribution. This practice amounted to an undisclosed interest-free loan to AVG from the funds it managed, and since bringing this issue to AVG’s attention, AVG has repaid the affected funds $4,791,401 in interest.”

The SEC used the following example to explain the fees charged by AVG:

“For example, if an investor contributed $100,000 to a Fund managed by AVG, AVG would immediately assess 20 percent, or $20,000, as its management fee for the expected life of the Fund. AVG typically drew and spent most or all of this $20,000 to pay expenses during the first year of the Fund’s operations.”

Reportedly, AVG CEO Collins distributed a letter to investors stating:

“[we are] pleased to inform you that Alumni Ventures has reached a mutual agreement with regulators regarding two compliance-related items brought to our attention from more than two years ago. The two issues raised include the appropriate documentation around AV’s short-term loans to venture funds (which were authorized in order to access time-sensitive venture deals) and the language describing management fees in some marketing materials, as well as some past-due state filings.”

He added that AGV is now in compliance:

“We have fully resolved both issues and view reaching agreement as a prudent step forward and part of our continued work in strengthening our compliance procedures and operating systems to best serve investors and all our stakeholders. Our current business practices and those of recent years are compliant with this framework, and we’re excited to continue bringing venture capital to many more accredited investors in a smart, simple way.”

Beyond a cease and desist from committing any future violations, the SEC requires AVG to pay a penalty in the amount of $700,000 to the SEC. Collins must pay a civil money penalty in the amount of $100,000 to the SEC. Penalties are also being paid to both the New Hampshire Bureau of Securities and the Massachusetts Securities Division as well.

 

 

 

 

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