SEC Charges Florida Firm with Fiduciary Breaches Linked to Private Funds

The SEC has reportedly charged FlowPoint Partners, a Florida-based investment adviser, over alleged fiduciary failures and repeated misstatements it purportedly knowingly made to investors in private funds it sub-advised and managed.

On Wednesday, the SEC issued charges against FlowPoint Partners for violations related to the auditing of four private funds they managed, as well as alleged failures to adhere to key fund requirements.

FlowPoint Partners has agreed to settle the charges without admitting or denying the allegations. The settlement, subject to court approval, includes permanent injunctions against future violations, and a $145,000 civil penalty.

Misrepresentations

The SEC’s complaint stated that between July 2020 and late 2023, FlowPoint Partners allegedly represented to investors that the funds were audited annually by an independent firm. Established in 2020, the firm reportedly was originally headquartered in Boston, Massachusetts, before relocating to Fort Lauderdale, Florida. As of August 2023, FlowPoint Partners purportedly had roughly $32 million in assets under management (AUM), with 85 investors having stakes in the funds it managed, according to the complaint.

The four funds involved were allegedly:

• Congress Street Business Trust
• Essex Street Equity Opportunities Fund LP, a private equity venture capital fund
• Melcher Street Funding LLC, a “multi-strategy alternative investment vehicle”
• Summer Street Business Trust

Misstatements

The SEC alleged that although FlowPoint Partners engaged an auditor to audit two of the four funds, the auditor reportedly did not produce any audit reports. Despite knowing the auditor wasn’t actually providing audit reports, the firm allegedly continued to misstate this information to investors.

Alleged Fraud on the Funds

The SEC further alleged that FlowPoint Partners breached fiduciary duties by not securing required annual audits for two of the funds, as stipulated in their organizational documents. The regulator maintained that this negligence meant the firm allegedly “operated a fraud on the Funds.”

The SEC’s complaint reportedly charges FlowPoint Partners with violating numerous antifraud provisions, including Section 17(a) of the Securities Act of 1933 and Sections 206(2) and 206(4) of the Investment Advisers Act of 1940.

The complaint also accuses the firm of failing to establish and enforce policies to prevent the misuse of nonpublic information, a violation of Section 204A of the Advisers Act.

In addition to the injunctions and penalties, there is reportedly a requirement for FlowPoint Partners to review and update its fund audit disclosures. Additionally, the firm’s principal is reportedly barred from serving as an officer or director of certain public companies for three years.

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