Swiss-based Capital Dynamics has agreed to pay the US Securities and Exchange Commission $275,000 “to settle charges that it improperly allocated” $1.27 million in expenses to its former US Solar Energy Fund that it should have covered itself.
The SEC said the mischarges took place between March 2011 and July 2015 and included $476,000 in consulting fees and $797,000 in legal expenses that were not provided for in the solar fund’s organisational documents, resulting in violations of the Investment Advisers Act.
The watchdog also claims the Swiss firm “failed to adopt written policies or procedures reasonably designed to prevent violations of the Advisers Act arising from improper allocation of expenses to the Solar Fund”.
Capital Dynamics was first contacted by the SEC’s enforcement division in December 2014, the agency said. As part of the settlement, the firm did not confirm or deny the claim, but agreed to pay the penalty and has reimbursed more than $1.4 million to the solar fund since the investigation started.
The US Solar Energy Fund closed in 2012 with $282 million of committed capital from institutional investors including Clwyd Pension Fund, North Carolina State Treasury and Surrey County Pension Fund. It was fully invested in April 2014 and its assets sold to SunEdison yieldco TerraForm Power later that year.
Part of the reason for the mischarges, the SEC said, resided in the documents Capital Dynamics used to govern expenses – a combination of the fund’s organisational documents (comprising a private placement memorandum, an LPA and a management agreement) and an internal document referred to as the “Solar Fund Bible”.
“The Solar Fund Bible contained insufficient guidance about the approval of expenses and provided for little or no review of approved invoices, including for legal expenses purportedly incurred on behalf of the fund,” the SEC said.
Capital Dynamics hired a new chief compliance officer in January 2014, who “led a compliance initiative to evaluate [Capital Dynamic's] expense approval and review procedures”, in what the SEC called an example of “several remedial measures to improve its compliance programme”. It also hired outside lawyers and consultants to conduct an internal review and replaced the “Solar Fund Bible” with “comprehensive expense allocation policies and procedures”, according to the SEC.
Capital Dynamics and its lawyers, Clifford Chance, did not respond to a request for comment. A spokesperson for the SEC declined to comment.