The SEC charged Insight Venture Management LLC, a private equity and venture capital firm, with overcharging management fees and failing to disclose a conflict of interest related to its fee calculations.
The SEC said in a news release announcing the charges Tuesday that Insight's "limited partnership agreements for certain funds it advised" allowed the firm "to charge management fees based on the funds' invested capital in individual portfolio investments and required Insight to reduce the basis for these fees if Insight determined that one of these portfolio investments had suffered a permanent impairment."
The SEC said that from August 2017 to August 2021, Insight — which also goes by Insight Partners — charged excess management fees through inaccurate calculations, basing them on "aggregated invested capital at the portfolio company level instead of at the individual portfolio investment security level," as the LP agreements required.
Also, the SEC found that Insight failed to disclose a conflict of interest in relation to its permanent impairment criteria.
"Because Insight did not disclose its permanent impairment criteria, the LPs were unaware that the criteria Insight chose were narrow and subjective, making them difficult to satisfy," the agency said in its cease-and-desist order.
"Investment advisers must accurately calculate their fees in accordance with the fund documents," said Andrew Dean, co-chief of the SEC enforcement division's asset management unit, in the news release. "Moreover, when advisers employ fee calculation policies that create conflicts of interest, including permanent impairment policies, they must disclose those conflicts just like all other material conflicts."
Insight agreed to pay a $1.5 million penalty and $864,958 in disgorgement and prejudgment interest, which has been distributed to the impacted funds, the SEC said.
Insight did not immediately respond to a request for comment.