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SEC Charges Private Equity Firm Over Fee Disclosure Failures to Affiliate

Posted on September 21st, 2023 at 11:03 AM
SEC Charges Private Equity Firm Over Fee Disclosure Failures to Affiliate

From the desk of Jim Eccleston at ÍøÆØ³Ô¹Ï 

The Securities and Exchange Commission (SEC) has charged Prime Group Holdings LLC, a private equity firm specializing in alternative real estate asset investments, with inadequate disclosure of millions of dollars in real estate brokerage fees paid to a brokerage firm owned by its CEO.

The SEC's order states that Prime Group initiated an investment fund in 2017 to acquire self-storage real estate properties. The order reveals that the fund primarily relied on Prime Group's employees and independent contractors to identify and purchase "off-market" properties. The related expenses, compensation, and other operational costs of Prime Group were partially funded through a three percent brokerage fee paid by the fund for the acquisitions. The order further discloses that those brokerage fees were paid to a real estate brokerage firm entirely owned by Prime Group's CEO, effectively making the brokerage firm an affiliate of Prime Group.

Consequently, as per the order, Prime Group made deceptive statements in the fund's offering documents, including the limited partnership agreement, private placement memorandum, and due diligence questionnaires concerning fees and conflicts of interest. This was due to Prime Group's failure to adequately disclose that an affiliate would receive these real estate brokerage fees. Over the period spanning 2017 to 2021, the affiliated real estate brokerage firm received nearly $18 million in brokerage fees upon completing the fund's property acquisitions.

Prime Group has agreed to settle the charges by paying a $6.5 million civil penalty and more than $14 million in disgorgement and prejudgment interest. According to the SEC order, Prime Group violated Section 17(a)(2) of the Securities Act of 1933.

 

ÍøÆØ³Ô¹Ï LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.

Tags: eccleston, eccleston law, sec

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