The US Securities and Exchange Commission (“SEC”) announced that Ares Management LLC, a Los Angeles-based private equity firm and registered investment adviser, agreed to pay $1,000,000 to settle charges that it failed to implement and enforce policies and procedures reasonably designed to prevent the misuse of material non-public information (“MNPI”).
The SEC’s order finds that, in 2016, Ares invested several hundred million dollars in a public company which allowed Ares to appoint a senior employee to the portfolio company’s board of directors. The order finds that Ares’s compliance policies failed to account for the special circumstances presented by having an employee serve on a portfolio company’s board while that employee continued to participate in trading decisions regarding that same portfolio company.
According to the order, Ares subsequently obtained potential MNPI about the portfolio company relating to changes in senior management, adjustments to the company’s hedging strategy, and decisions with respect to the portfolio company’s assets, debt, and interest payments. After receiving this information, Ares purchased more than one million shares of the company’s common stock, which amounted to approximately 17% of the publicly available shares at the time.
The order finds that Ares did not require its compliance staff, prior to approving the trades, to sufficiently inquire and document whether the board representative and members of his Ares team possessed MNPI relating to the portfolio company.
The order also finds that Ares violated the compliance policies and procedures requirements of Sections 204A and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder. Without admitting or denying the findings, Ares consented to the entry of a cease-and-desist order and a censure, and to pay a civil penalty of one million dollars.