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Misuse of Private Fund Assets Leads to SEC Enforcement and Industry Bar for Fund Manager

In a cautionary tale about the career-limiting risks of SEC sanctions, a private fund adviser and its owner were found to have misused over $1 million of fund assets, resulting in a bar from the investment industry as well as a civil penalty.

Monsoon Capital, LLC (Monsoon) is an SEC-registered investment adviser founded and owned by Gautam Prakash. Among Monsoon’s clients is Monsoon Infrastructure & Realty Co-Invest, L.P. (MIRC), a private fund focused on infrastructure investments in India.

According to the settlement order, between 2015 and 2019, Prakash routinely purchased two airline tickets for the same trip, but for different prices and on different airlines. He then obtained a refund for the more expensive ticket, used the cheaper one, but submitted the more expensive one for reimbursement to be paid in part as a MIRC fund expense. Prakash retained the difference in cost, and he collected $44,042 in excess travel costs for himself. In 2019, Prakash returned the improper expenses with interest, and disclosed them in the fund’s 2018 financial statements.

Additionally, the SEC alleged that Prakash borrowed $1 million in 2017 from a MIRC fund account to settle a personal trade of his in India. He had initially attempted to transfer funds to his personal account in India, but an error caused the money to not be available in time to fund the transaction. Prakesh then temporarily borrowed $1 million from MIRC’s account to settle the trade, in spite of alleged warnings from Monsoon employees that this would constitute a breach of fiduciary duty. Prakash returned the $1 million with interest, and disclosed the loan in MIRC’s 2018 financial statements.

The SEC found that Monsoon and Prakash willfully violated Advisers Act provisions that prohibit defrauding clients, engaging in fraud, and making false statements to investors. As a result, the SEC barred Prakash from the investment industry and required Monsoon and Prakash to pay a $100,000 civil penalty.

This case should serve as a cautionary tale. It’s unlikely that Prakash will be able to work as an investment advisor or associate with another regulated entity in the future – all for seemingly little gain on his part. The SEC imposed an unqualified industry bar, with no right to reapply, so Prakash likely would need to show “extraordinary circumstances” if he is ever to return to the industry.

See In re Matthew D. Sample, 2015 WL 5305992, SEC Release No. 4193 (Sept. 10, 2015).

© 2020 Proskauer Rose LLP.

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About this Author

Julia Ansanelli, Litigation attorney  in New York, Proskauer Law firm
Associate

Julia Ansanelli earned her bachelor's degree from New York University and her J.D. from Touro Law Center, where she graduated as valedictorian of her division. During law school, she served as case note editor of the Touro Law Review and vice president of Touro's Latin American Law School Association. Julia also interned for the Honorable Magistrate Kathleen Tomlinson in the Eastern District of New York.

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Joshua Newville, Proskauer Rose, regulatory enforcement attorney, industry compliance legal counsel, securities exchange commission lawyer
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Joshua M. Newville is a partner in the Litigation Department in New York. His practice focuses on commercial litigation and regulatory investigations. Mr. Newville advises companies and individuals in securities litigation and compliance matters. He also focuses on internal investigations and enforcement matters. Prior to joining Proskauer, Josh was senior counsel in the U.S. Securities and Exchange Commission’s Division of Enforcement, where he investigated and prosecuted violations of the federal securities laws. Josh served in the Enforcement Division’s Asset Management Unit, a specialized unit focusing on investment advisers and the asset management industry.  His prior experience with the SEC provides a unique perspective to help private investment funds and their advisers manage risk and handle regulatory issues.

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Samuel Waldon, Proskauer Law Firm, Washington DC, Corporate Law and Litigation Attorney
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Sam Waldon is a partner in the Litigation Department and a member of the Securities Litigation, White Collar Defense & Investigations and Asset Management Litigation Groups.

Sam’s practice focuses on securities litigation, enforcement and regulatory matters. He represents corporations and financial institutions, and their officers, directors and employees, in investigations, exams, internal investigations and litigation. Sam has in-depth experience in a broad range of Securities and Exchange Commission (SEC) enforcement matters, including...

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