On December 20, 2024, the Securities and Exchange Commission (“SEC”) settled charges against Rose Park Advisors, LLC (“Rose Park”), a Boston-based private fund adviser, and Rose Park’s owner and managing partner, Matthew Q. Christensen (“Christensen”), for failing to disclose conflicts of interest with respect to a portfolio company where Christensen had a close familial and financial connection.
Key Takeaways: Conflicts of interest continue to be a focus of examination and enforcement (as indicated in the SEC’s Examination Priorities). The SEC’s Order focused on Rose Park’s lack of disclosure. It is imperative to identify and disclose both actual and potential conflicts of interest to avoid costly fines and penalties.
Summary
According to the order, Rose Park and and Christensen failed to disclose several actual or potential conflicts of interest relating to Christensen’s relationship with a portfolio company’s CEO who also happened to be Christensen’s uncle. In addition to the familial connection, Christensen’s uncles served as the trustee for three trusts where Christensen was a beneficiary.
Between 2012 and 2024, Rose Park caused a private fund (the “Fund”) advised by Rose Park to invest a total of $49.6 million in the portfolio company where Christensen’s uncle was CEO. The Fund was the only investor in the portfolio company, and the Fund’s investments were allegedly “essential for” the portfolio company “to maintain its business operations, including salaries to the CEO and other employees.”
In addition, Christensen’s uncle was the trustee for family trusts in which Christensen was a beneficiary. These trusts were among the Fund’s largest investors. As trustee, Christensen’s uncle controlled the timing and distribution of assets from the trust to Christensen. He also decided how to invest the trusts’ assets. Finally, in his capacity as a trustee, Christensen’s uncles authorized certain transactions that allowed Christensen to obtain a substantial revolving credit facility, proceeds of which Christensen invested in the Fund.
The conflicts of interest were not disclosed to the Fund or the investors in the Fund, however they were widely known to all personnel including investment, compliance and investor relations personnel.
SEC Charges
The SEC found Rose Park and Christensen willfully:
(1) violated Section 206(2) of the Advisers Act, which makes it unlawful for any investment adviser, directly or indirectly, to “engage in any transaction, practice or course of business which operates as a fraud or deceit upon any client or prospective client,”
(2) violated Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder, which make it unlawful for any investment adviser to a pooled investment vehicle to “[m]ake any untrue statement of a material fact or to omit to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading, to any investor or prospective investor in the pooled investment vehicle; or [o]therwise engage in any act, practice, or course of business that is fraudulent, deceptive, or manipulative with respect to any investor or prospective investor in the pooled investment vehicle.
(3) violated Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder, which require a registered investment adviser to adopt and implement written compliance policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder by the adviser and its supervised persons.
Rose Park was ordered to pay a $500,000 fine while Christensen was ordered to pay $50,000.
How Trillium Can Help
Disclosure Practices
By building a close partnerships, Trillium helps identify idiosyncratic areas of risk and helps firms manage, mitigate and disclose conflicts of interest.
Testing
A key component of Trillium’s ongoing compliance support is reviewing your firm’s practices in key risk areas against policies and procedures and disclosures. The ability to identify and rectify problematic areas prior to an examination has the ability to prevent significant time and expense later on.