Five years ago, while a venture capitalist with the investment firm Adams Street Partners, Matt Crisp made what may prove to be a career-ending mistake.
Through a private investment vehicle called AV Partners that he co-founded with a friend in 2006, Crisp invested alongside Adams Street in two deals in 2007, including online ticket reseller TicketsNow and online travel site ShermansTravel. But while Crisp invested in the companies at the same time as Adams Street, and on the same terms and with the same conditions, he never told Adams Street about his role in AV Partners. He didn’t tell the companies, either.
Crisp’s attorney says the omissions did not cause any financial harm. But Crisp and the Securities and Exchange Commission reached a settlement today that bans him from working as a registered investment advisor through July 2013, ordered him to pay Adams Street $89,761, and fined him $50,000.
It’s a “fairly mild penalty,” says former SEC attorney Dan Hurson, particularly given where the SEC started.
Almost a year ago to the day, based on information provided by Adams Street, the SEC charged Crisp with “secretly” forming a private investment vehicle with his friend, Joseph Wolfe. The SEC also alleged that “Crisp then usurped from Adams Street’s funds, for AV Partners, a lucrative investment opportunity in a private company,” and that “Crisp further enriched himself with a personal payment of $150,000 during a later buyout of the same private company.”
At the time, the agency believed that Crisp, the lead sponsor for TicketsNow, was authorized to syndicate $1.5 million of a $15 million stake owned by Adams Street, to reduce the firm’s risk. Given that Crisp syndicated $1.5 million of the deal to AV Partners, it certainly looked suspicious. (Adams Street sold an additional $500,000 piece of its stake to an Atlanta-based broker dealer, Croft & Bender.)
But testimony from Crisp’s trial, held in January, shows that Crisp first tried convincing Adams Street not to syndicate the deal at all. Said Crisp’s co-sponsor on the deal, Jeff Diehl of Adams Street: “…Matt and I actually thought we should do the whole deal ourselves, all $15 million, because we were more confident than the other partners about the company’s ability to not need more capital down the road.”
Emails submitted to the SEC by Crisp’s legal team further suggest Crisp was authorized to syndicate up to $5 million of the deal (not $1.5 million), and that he tried, at least minimally, to do so.
“Thanks again for the intro to TicketsNow,” reads one email from Jason Pressman of Shasta Ventures. “We love the business but feel it is just too far along in valuation and capital needs to fit our comfort zone.” (Other firms contacted about TicketsNow by Crisp include H.I.G. Capital, Sutter Hill and Stripes Group, a New York-based investment firm.)
A copy of Crisp’s employment contract, obtained by peHUB, also states that “[a]t such time as employee offers and presents an investment opportunity to Adams Street…If Adams Street rejects any such [investment] opportunity, employee may present and offer such an opportunity to other potential investors, and Employee may invest in such opportunity as well.”
Reached for comment, Crisp, likely consistent with his settlement, didn’t admit or deny the allegations, saying only in response to numerous questions about the case: “I’m glad we were able to provide the SEC with information they hadn’t been able to see prior to charges being filed, and that proved no one was harmed.”
Crisp’s attorney, Tom Mayhew, said in an email: “Adams Street withheld important evidence from the SEC during their investigation and decision to file charges against Matt Crisp.”
At Crisp’s trial, Mayhew added, “the truth came out that Matt was fully authorized to syndicate up to $5 million and that no investors were harmed by his actions.”
Adams Street did not respond to questions.
Crisp appears to have made a lot of money for Adams Street in a short period. To wit, TicketsNow was acquired by Ticketmaster for $295 million in cash in January 2008, just 12 months after Adams Street led a $34 million round in the company. The acquisition returned 4x Adams Street’s investment, or roughly $53 million.
Meanwhile, AV Partners netted $4.5 million and Crisp wrote a check to Adams Street for his half of the proceeds, for an additional $2.27 million. (Crisp hoped he might save his job by giving his profit to Adams Street, whose executives approached Crisp shortly after the TicketsNow sale. Adams Street took the money, then fired Crisp, who hasn’t worked full-time since.)
Crisp’s biggest offense, of course, was failing to tell anyone about his connection to AV Partners, despite repeated opportunities to do so. For example, Diehl testified that he asked Crisp numerous times about the entity and that Crisp characterized it as Wolfe’s personal investment vehicle alone, which was a breach of Adams Street’s integrity policy. Jim Sherman, the former CEO and now chairman of ShermansTravel tells me he was also “surprised” to learn of Crisp’s side dealings, especially after Crisp led him to believe AV Partners was Wolfe’s personal vehicle.
Sherman, however, insists Crisp’s involvement with AV Partners would have been “nice to know” but that not knowing “didn’t lead to any harm.” Says Sherman: “My understanding was that AV Partners was riding along [its investment in ShermansTravel] with Adams Street, and whether or not Matt owned a percentage of AV Partners wouldn’t have mattered a great deal in our discussions.” (ShermansTravel remains privately held.)
Hurson, the former SEC lawyer, says he “wouldn’t call [the settlement] a win” for Crisp, but that he thinks he “got off light.”
Crisp “lied,” says Hurson, “and the [antifraud] rule under which the SEC brought the case, Rule 206(4)-8, is very broad.”
If it becomes broader, you can thank Crisp. One source at his trial tells me that an SEC attorney stated publicly at the proceedings that the SEC was, in effect, “creating case law” with the trial, in an effort to close some loopholes in its antifraud regulations.
Hard as that may be to believe, Jacob Frenkel—another former SEC. lawyer and now at a white shoe firm in Potomac, Md.—suggests the practice isn’t as outlandish as it sounds.
“The SEC does not hesitate to bring cases on the margins when its purpose is to use the enforcement process to establish a practice or precedent. And cases such as this, where the law is not clear, is a classic example of regulation by enforcement.”
Adds Frenkel, “To the extent that the SEC might not have liked [a person's] conduct or the facts, it will sometimes roll the dice.”
Editor’s Note: An earlier version of this story was accidentally posted prior to editing. That post was taken down.