The Securities and Exchange Commission (SEC) on Friday announced settled charges with the chief compliance officer of investment adviser VII Peaks Capital for her alleged role in causing the firm to breach fiduciary duties.
Michelle MacDonald agreed to a cease-and-desist order and to pay a $20,000 penalty as part of an agreement reached with the SEC. She neither admitted nor denied the agency’s findings.
The SEC in an administrative proceeding said MacDonald was responsible for VII Peaks Capital engaging in transactions that benefitted themselves to the detriment of their client, VII Peaks Co-Optivist Income BDC. MacDonald, who also serves as chief financial officer at the BDC, allegedly signed off on several agreements that included due diligence fees from the BDC that VII Peaks was retaining without disclosure to and/or approval from the BDC board of directors.
“The BDC’s board of directors understood that these fees were transferred to VII Peaks for the purpose of paying third-party experts who conducted the due diligence,” the SEC stated. “In fact, VII Peaks did not hire third-party experts, but instead retained the fees without disclosing to the board that it was doing so.”
Fees received that MacDonald allegedly handled improperly totaled more than $722,500, according to the SEC. “MacDonald as the CFO of the BDC was responsible for ensuring that appropriate payments were made by the BDC,” the agency stated.
The alleged lapses occurred from late 2015 through 2017. From April 2015 to April 2019, MacDonald served as CFO of the BDC and VP of compliance at VII Peaks. She still holds her CFO title and was promoted to CCO at VII Peaks in May 2019.
“By her conduct, MacDonald was a cause of VII Peaks’ violations of Section 206(2) of the Investment Advisers Act,” the SEC stated.
In a separate settlement, VII Peaks agreed to a cease-and-desist order and to pay disgorgement of $722,500, prejudgment interest of $123,199, and a civil penalty of $185,000. Co-Owner and Managing Member Gurprit Chandhoke, who recommended and determined all investments for the BDC, agreed to several 12-month suspensions; a cease-and-desist order; and to pay disgorgement of $87,500, prejudgment interest of $16,857, and a civil penalty of $90,000.