Ares Management has agreed to pay $1 million to settle charges filed by the SEC accusing the private equity firm of failing to implement and enforce policies and procedures reasonably designed to prevent the misuse of non-public information.
The SEC's order contends that in 2016 Ares appointed a senior employee to the board of a public company in which it had invested.
However, the regulatory agency found that Ares' compliance policies failed to account for the special circumstances presented by having an employee serve on the portfolio company's board while that employee continued to participate in trading decisions regarding the portfolio company.
Through its representative on the company's board, the SEC said Ares obtained information about the company that was not available to the public relating to senior management changes, adjustments to its hedging strategy, and decisions on its assets, debt and interest payments.
After receiving this information, Ares purchased more than 1 million shares of the company's common stock, which was 17% of the publicly available shares.
Although the stock purchase orders had been approved by Ares’ compliance department and occurred during open trading windows at the portfolio company, the order finds that Ares did not require its compliance staff to sufficiently inquire and document whether the board representative and his team possessed material non-public information relating to the portfolio company before approving the trades.
Ares spokesman Bill Mendel issued the following statement via email: “Ares takes its fiduciary responsibilities very seriously and remains committed to operating with the highest standards of governance and compliance. We fully cooperated with the SEC in this matter, which relates to implementation of certain compliance policies and procedures in effect during 2016 and does not include any findings of misuse of MNPI (material non-public information) by the company or any of its employees.”
The statement added: “As the order notes, we have significantly enhanced our controls since then. As an organization, we continue to seek ways to further enhance our policies, procedures and practices to adapt to changes in regulation, our business and the market.”
"Investment advisers and private equity firms that place employees on the boards of public companies bear heightened risks that they will obtain non-public material information through their representative occupying dual roles," said Anita B. Bandy, associate director in SEC's division of enforcement, in a news release issued by the agency. "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."
In addition to paying the penalty, Ares has also agreed to cease and desist from the activity and accept censure while neither confirming nor denying the charges.