SEC Charges Ranieri Partners Management LLC for Violations Under the Securities Exchange Act of 1934
Mar 20 13
The SEC charged Ranieri Partners LLC (Ranieri); its former senior managing partner, Donald Phillips (Phillips); and William Stephens (Stephens), an independent consultant hired by Ranieri, with various violations under the Securities Exchange Act of 1934. Specifically, Stephens was found to have acted as an unregistered broker in marketing interests in Ranieri's funds in violation of Section 15(a) of the Exchange Act; Ranieri was found to have "caused" that violation; and Phillips to have willfully aided and abetted and caused the violation. The SEC found that Phillips caused entities controlled by Ranieri to hire Stephens as an independent consultant to solicit investors for investment funds managed by Ranieri. At the time of Stephens' hiring, Phillips claimed to have been "generally aware" of Stephens' prior disciplinary history with the SEC. Stephens' contract specified that Ranieri would pay him a commission equal to 1% of all capital commitments made to the Ranieri funds by investors introduced by Stephens. Phillips claimed to have informed Stephens that (i) Stephens' activities on behalf of Ranieri should be limited to contacting potential investors to arrange meetings with Ranieri principals, and (ii) Stephens was not permitted to provide private placement memoranda (PPMs) directly to potential investors, or to directly contact investors to discuss the merits and strategies of the Ranieri funds. However, according to the SEC, even though Phillips was responsible for coordinating Stephens' (and other finders') activities regarding contacting potential investors, he failed to provide any real oversight of Stephens' solicitation activities. Despite Phillips' alleged instructions to Stephens prohibiting the distribution of PPMs to potential clients, the SEC found that Phillips and other Ranieri personnel provided him with PPMs, subscription documents and other marketing materials (such as executive business plan summaries). Stephens did set up initial meetings with potential investors, during which Phillips made presentations regarding possible investments in the Ranieri funds. But on several occasions subsequent to those meetings, Stephens communicated on his own, both in person and via email, with these potential investors (and other persons associated with these potential investors) without any participation of Ranieri personnel. For example, Stephens sent PPMs and other written materials to those potential investors. He also sent potential investors confidential information containing the names of other potential investors, their anticipated capital commitments and expected dates of investment. Stephens also sent emails to potential investors promoting the likely "above market returns" of the funds being offered. In settling the SEC's claims against him, Stephens agreed to a permanent bar from the securities industry, and to pay disgorgement and prejudgment interest in the amount of approximately $2.83 million (which the SEC waived based upon Stephens' sworn statement that he lacks the funds to pay). Ranieri agreed to a penalty of $375,000 and to a cease and desist order with respect to current and future violations of Section 15(a), and Phillips agreed to a penalty of $75,000, an identical cease and desist order, and a nine-month suspension from acting in a supervisory capacity in the securities industry. This case may signal a broader focus by the SEC on the use of unregistered consultants and finders to solicit sales of private funds. Notably, the SEC took action not only against the finder, but also against the fund management company and one of its principals for not properly supervising the finder's interactions with potential investors. Moreover, the case stands out as one in which a finding of a violation of the broker-dealer registration provisions was unaccompanied by any finding of fraud or other misconduct in connection with the relevant Ranieri fund offerings. Going forward, fund managers should bear in mind, first, that the payment of transaction-based compensation continues to be a red flag to SEC staff that broker-dealer registration may be required; and second, that contractual provisions or other formalistic instructions to consultants or finders purporting to place limits on their interactions with potential investors-especially if the sponsoring fund turns a blind eye to activity by a consultant that is contrary to such instructions-may not be sufficient to protect the firm and its principals from potential charges of causing, or aiding and abetting, violations of the broker registration requirements.
U.S. Securities and Exchange Commission Charges Ranieri Partners, Former Executive, and Consultant for Improperly Soliciting Investments
Mar 12 13
The Securities and Exchange Commission announced charges against Ranieri Partners, a former senior executive, and an unregistered broker who violated securities laws when soliciting more than $500 million in capital commitments for private funds managed by the firm. The federal securities laws require that an individual who solicits investments in return for transaction-based compensation be registered as a broker. An SEC investigation found that William M. Stephens of Hinsdale, Ill., solicited investors as a hired consultant for the company and was paid fees by the firm, but never registered as a broker. Stephens' longtime friend Donald W. Phillips, a senior managing director who headed up capital raising efforts for the company, was responsible for overseeing Stephens' activities as a purported 'finder' who would merely make initial introductions to potential investors. But Stephens' role went far beyond that of a finder. He consistently communicated with prospective investors and their advisors and provided them with key investment documentation that he received from the company. The company, Phillips, and Stephens agreed to settle the SEC's charges. The SEC's orders instituting settled administrative and cease-and-desist proceedings, Stephens engaged in the business of effecting transactions in securities in several ways despite not being registered as a broker or affiliated with a registered broker-dealer. Stephens sent private placement memoranda, subscription documents, and due diligence materials to potential investors, and urged at least one investor to consider adjusting portfolio allocations to accommodate an investment with the company. Stephens provided potential investors with his analysis of the strategy and performance track record for the company's funds, and also provided confidential information identifying other investors and their capital commitments. The SEC charged Stephens with violating Section 15(a) of the Securities Exchange Act, which requires people acting as brokers to be registered with the SEC. The SEC's order against Phillips and the company found that Phillips, who lives in Barrington, Ill., aided and abetted Stephens' violations by providing Stephens with key fund documents and information while ignoring red flags indicating that Stephens had gone well beyond the limited role of a finder and was actively soliciting investments. The order found that the company caused Stephens' violations. In settling the SEC's charges, the company agreed to pay a penalty of $375,000, Phillips agreed to pay a penalty of $75,000, and Stephens agreed to be barred from the securities industry. The SEC's orders require each of them to cease-and-desist from further violations of Section 15(a). The SEC also suspended Phillips from acting in a supervisory capacity at an investment adviser or broker-dealer for nine months. The company, Phillips and Stephens consented to the entry of the SEC's orders without admitting or denying the findings.