Old Ironsides Energy, a registered investment adviser, will pay a $1 million penalty to settle Securities and Exchange Commission charges for failing to implement its own compliance policies and procedures regarding the distribution of marketing materials.
According to the SEC’s administrative proceeding, Old Ironsides distributed marketing materials for a private fund, called Old Ironsides Energy Fund II (OIE Fund II). From March 2014 to April 2015, while drafting its marketing materials for OIE Fund II, “Old Ironsides failed to implement its policies and procedures in its compliance manual concerning the use of investment performance results in marketing materials,” the administrative proceeding states. “As a result of this failure, Old Ironsides’ marketing materials for OIE Fund II were rendered misleading.”
Specifically, Old Ironsides had in place a regulatory compliance manual and code of ethics that included policies and procedures prohibiting Old Ironsides and its employees from “publishing, circulating or distributing any advertisement which contained any untrue statement or omission of a material fact or which was otherwise false or misleading,” the administrative proceeding states. The compliance manual further included policies and procedures that “prohibited the use of performance results in Old Ironsides’ marketing materials that were false or misleading, including any misleading depictions of investment performance in both form and content leading to direct or indirect implications or inferences arising out of the context of the marketing materials.”
According to the SEC, the marketing materials violated this by identifying a “large, legacy investment with strong, positive returns as part of its historical ‘Track Record’ for early stage direct drilling investments (DDIs).” The SEC found the marketing materials represented Old Ironsides had direct management over this investment when it was actually an investment in a private fund advised by a third party.
“By including the private fund’s performance, Old Ironsides’ misleadingly improved its ‘Track Record’ for these types of investment,” the SEC states.
The SEC said the OIE Fund II’s marketing materials’ omission was significant for several reasons, “including that the returns on the private fund investment improved the performance for the legacy portfolio DDIs, and the marketing materials provided that OIE Fund II would invest in DDIs and stand-alone private equity investments, but not in other private funds.”
OIE Fund II received commitments of approximately $1.3 billion, according to the SEC.
The SEC’s order finds Old Ironsides willfully violated Section 206(4) of the Investment Advisers Act of 1940 and Rules 206(4)-1 and 206(4)-7. Without admitting or denying the findings, Old Ironsides agreed to a cease-and-desist order, a censure, and a $1 million penalty.