PE fund adviser pays $1.5m to settle SEC fee violation charges

New York-based investment adviser Insight Venture Management LLC has agreed to pay a $1.5 million penalty and and $864,958 in disgorgement and prejudgment interest, to settle Securities and Exchange Commission charges that it charged excess management fees and failed to disclose a conflict of interest to investors relating to its fee calculations. 

New York-based investment adviser Insight Venture Management LLC (Insight) has agreed to pay a $1.5 million penalty and and $864,958 in disgorgement and prejudgment interest, to settle Securities and Exchange Commission (SEC) charges that it charged excess management fees and failed to disclose a conflict of interest to investors relating to its fee calculations. 

According to the SEC’s order, Insight’s limited partnership agreements for certain funds it advised, allowed it to charge management fees based on the funds’ invested capital in individual portfolio investments, and required Insight to reduce the basis for these fees if it determined that one of these portfolio investments had suffered a permanent impairment. 

The order finds that, from August 2017 to April 2021, Insight charged excess management fees by inaccurately calculating based on aggregated invested capital at the portfolio company level instead of at the individual portfolio investment security level, as required by the applicable limited partnership agreements. 

Further, the SEC’s order finds that Insight failed to disclose to investors a conflict of interest in connection with its permanent impairment criteria. 

Insight consented to the entry of the SEC’s order finding that the firm violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rules 206(4)-7 and 206(4)-8 thereunder. Without admitting or denying the SEC’s findings, Insight agreed to the monetary penalty and a cease-and-desist order.