- Centre Partners to pay $50,000 penalty
- Does not admit or deny the findings
- Principals did not financially benefit from relationship
The SEC censured New York-based Centre Partners and imposed a $50,000 penalty for lack of disclosure of ownership stakes held by three principals in a service provider that works with the firm’s portfolio companies, according to an SEC order published this week.
The service provider, CentreTEK Solutions, provides information-technology due-diligence work on potential portfolio investments for a fee capped at $25,000 per engagement, the SEC’s order said. The funds pay the fee, the SEC said.
The three principals, who are not identified in the SEC’s order, did not financially benefit from the relationship, the SEC said.
Centre did not admit or deny the SEC’s findings and the SEC settlement did not include the firm paying restitution, as has been the case in past settlements.
“The terms of Centre’s engagement with CentreTEK were negotiated for the benefit of our funds and limited partners, and we continue to believe that the relationship with CentreTEK has been and continues to be advantageous to our investors,” a Centre Partners spokesman said in an emailed statement.
Centre Partners’s Form ADV, which was updated in November, said that while the principals’ ownership stakes in CentreTEK “may be deemed to constitute a conflict of interest, Centre Partners only engages CentreTEK on behalf of the funds if we view it to be in the best interests of the funds. Furthermore, portfolio companies may, at their election, engage CentreTEK to provide them with various services.”
Centre Partners was formed in 1986 and had $880.4 million under management as of Dec. 31, 2015, according to the firm’s Form ADV. The firm generally invests $15 million to $85 million in the U.S. and Canada. Its principal owners are Bruce Pollack and David Jaffe.
The three Centre Partners principals’ ownership stakes in CentreTEK were not disclosed from 2001 to 2014, SEC said. The principals have varying stakes in the company. Principal A invested $100,000 in CentreTEK when it was formed 15 years ago and another $25,000 a year later, the SEC said.
Principal A solicited Principals B and C to also invest in the company, which they did at $25,000 each around the same time, the SEC said. Collectively, the three principals own about 9.6 percent of CentreTEK’s shares outstanding, the SEC said. Two of the principals hold two of the three seats on CentreTEK’s board, the SEC said.
In addition, CentreTEK’s co-founder, president and chief executive is Principal A’s brother-in-law, the SEC said.
None of these relationships were disclosed, the SEC said. In 2012, while Centre Partners was raising Fund VI, it partly disclosed some of the relationships to the placement agent helping to raise the fund. At least one of the principals said at the time he believed LPs were aware of the relationships in part because CentreTEK’s name was similar to the firm’s, the SEC said.
The SEC conducted an examination of Centre Partners in 2014, after which, due to SEC concerns, Centre Partners provided disclosure of the potential conflicts in the private-placement memorandum for Fund VI, its Form ADV and to the audited financial statements of the funds, the SEC said.
But the enhanced disclosure of the relationships did not include the board seats held by two Centre Partners principals in CentreTEK. That disclosure was added in the updated Form ADV filed on Nov. 7, 2016, the SEC said.
The SEC’s investigation was conducted by Kimberly Yuhas, Peter Altenbach, Steven Rawlings and Matthew Lambert and supervised by Sanjay Wadhwa. The SEC examination that led to the investigation was conducted by Dawn Blankenship, Joy Best and Majid Mahmood.
Action Item: Check out Centre Partners’ Form ADV here: http://bit.ly/2jcpg7Y
The U.S. Securities and Exchange Commission logo adorns an office door at SEC headquarters in Washington on June 24, 2011. Photo courtesy Reuters/Jonathan Ernst