Ares Management has employees serving on the Portfolio Company’s board. They have access to nonpublic information about the Portfolio Company including
Changes to senior management; adjustments to hedging strategy, and decisions with respect to assets, debt, and interest payments.
After obtaining the nonpublic information, Ares Management acquired over one million shares or 17 percent of the Portfolio Company’s publicly available common stock.
According to the SEC, Ares Management did not require its compliance staff to properly inquire and document whether its employee-representatives in the Portfolio Company’s board possessed material nonpublic information about it.
Ares Management violated the Advisers Act
The SEC found that private equity firm willfully violated Sections 204A and 206(4) of the Advisers Act and Rule 206(4)-7.
In a statement, SEC Division of Enforcement Associate Director Anita B. Bandy said, “Investment advisers and private equity firms that place employees on the boards of public companies bear heightened risks that they will obtain nonpublic material information through their representative occupying dual roles. It is critical for firms like Ares to have proper policies and procedures in place to address these risks and prevent the misuse of information obtained under these special circumstances.”