The Securities and Exchange Commission today charged a New York-based investment adviser for allegedly defrauding investors and client funds in connection with investments in pre-IPO shares.
Investment adviser Adit Ventures Management, its CEO Eric Munson, and three affiliated general partners, Adit Ventures; Adit Ventures II; and Adit Ventures III used false claims and promises to persuade investors to contribute capital to Adit-managed funds, according to the SEC’s complaint.
From at least April 2019 through December 2024, the defendants solicited investors by falsely claiming that a fund owned shares of stock of a private, pre-IPO company. They also regularly used client capital for their own benefit, including by taking unsecured loans from funds on favorable terms, according to the complaint.
“Investment advisers are entrusted with acting in their clients’ best interests,” Corey Schuster, chief of the enforcement division’s asset management unit, said. “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.”
The complaint further alleges that the defendants violated their fiduciary duties by buying pre-IPO shares and then causing client funds to buy those shares at a higher price. They allegedly did this by misrepresenting the true cost of acquiring the shares to investors. The SEC also said they did not obtain the requisite consent for these principal transactions.
In addition, the defendants also allegedly overcharged their client funds millions in unauthorized “acquisition fees” and improperly pledged client assets as collateral for a $10 million line of credit. The credit was used in part to pay off the defendants’ own obligations, said the SEC. The SEC also alleges that Adit Ventures Management failed to register as an investment adviser.
The complaint, filed in the U.S. District Court for the Southern District of New York, charges Munson, Adit Ventures Management, and the General Partners with violating the anti-fraud provisions. It also charges Adit with violating the registration provisions of the Investment Advisers Act.
Without admitting the allegations in the complaint, the defendants consented to the entry of a judgment, subject to court approval, in which they agreed to be permanently enjoined from violating the charged provisions of federal securities laws. They also agreed that the Court shall order them to pay disgorgement with prejudgment interest and a civil penalty in an amount to be determined by the court upon motion by the commission. Additionally, Munson agreed to a forthcoming associational bar against him with a right to apply for reentry after three years.
The SEC got assistance from the Jersey Financial Services Commission on this case.