The Securities and Exchange Commission has filed fraud charges against investment adviser Adit Ventures Management, its CEO Eric Munson, and affiliated general partners.
According to a public statement, the defendants used false claims to persuade investors to contribute money to Adit-managed funds, falsely claiming that a fund owned shares of stock of a private, pre-IPO company. The SEC claims that the defendants used the funds for purposes such as unauthorized loans and other illicit purposes.
The defendants allegedly purchased pre-IPO shares using fund loans or their own capital and then sold or assigned the same economic interest to client funds at higher prices, retaining the difference. More than 150 such transactions allegedly occurred.
One instance of misallocation of investor funds includes shares of SpaceX.
The activity allegedly involved tens of millions of dollars in unauthorized loans, markups, and fees across many funds and investors. Specific large single investments included the approximately $15 million Klarna-related commitment and the $5 million contribution that was redirected.
The SEC reports that the defendants have consented to a judgment that permanently enjoins them from violating the charged provisions. Without admitting the allegations, they have agreed that the Court will order disgorgement plus prejudgment interest and a civil penalty. Munson has also agreed to an associational bar with the right to reapply after three years.
Corey Schuster, Chief of the Enforcement Division’s Asset Management Unit, said that investment advisors must act in a client’s best interest.
“Here, the defendants allegedly engaged in repeated fraudulent acts to benefit or enrich themselves. That misconduct has no place in investment advisory relationships where clients count on investment advisers being their fiduciaries.”