The SEC charged Prime Group Holdings LLC, a private equity real estate firm, Tuesday with failing to disclose nearly $18 million in real estate brokerage fees paid to a brokerage firm owned by its CEO, and the firm agreed to pay $20.5 million in penalties.
Without admitting or denying the SEC's findings, Prime Group agreed to pay the sum in penalties, disgorgement and prejudgment interest to settle the charges.
In 2017, Prime Group Holdings, based in Saratoga Springs, New York, launched an investment fund known as Prime Storage Fund II to purchase self-storage real estate properties, according to a Tuesday SEC news release. The fund relied heavily on deal teams made up of Prime Group's employees and independent contractors to find and acquire "off-market" properties, according to the SEC, and such teams' costs and compensation were paid partly from a 3% brokerage fee the fund paid on the deal teams' acquisitions.
The SEC said these fees were paid to a real estate brokerage firm that was wholly owned by Prime Group's CEO, making the firm an affiliate of Prime Group.
"As a result, according to the order, Prime Group made misleading statements in the fund's offering materials, including its limited partnership agreement, private placement memorandum, and due diligence questionnaires, concerning fees and conflicts of interest, because Prime Group failed to adequately disclose that an affiliate would be receiving these real estate brokerage fees," the news release said.
The SEC found that between 2017 and 2021, the affiliated brokerage firm received nearly $18 million in brokerage fees at the closing of Prime Group's property acquisitions.
"Funds, including those that invest in alternative asset classes, must ensure that their offering materials contain clear, accurate, and adequate disclosures," Osman Nawaz, chief of the SEC enforcement division's complex financial instruments unit, said in Tuesday's news release. "In particular, information related to payments made to affiliates, and the potential conflicts of interest embedded in such arrangements, is critical to investors' decisions."
A representative from Prime Group declined to comment.
