A New York City-based investment advisor and its CEO allegedly misused tens of millions of dollars in client money while collecting millions in unauthorized fees and profits from funds investing in coveted pre-IPO shares of companies including SpaceX and Klarna, according to a lawsuit filed by the Securities and Exchange Commission.
Adit Ventures Management, CEO Eric Munson and three affiliated general partners settled the charges under an agreement with the SEC in which they neither admitted to nor denied charges that they defrauded investors and client funds from at least April 2019 through December 2024, the SEC said. The amount the defendants will have to pay in disgorgement, prejudgment interest and civil penalties will be determined later, the agency said.
Munson, 65, who is co-founder, CEO, chief investment officer and chief compliance officer and owns more than 75% of the RIA, agreed to an industry bar that will allow him to apply for reentry after three years, the SEC said.
The scheme included more than 50 unauthorized loans involving tens of millions of dollars in client and investor money, according to the complaint. The SEC also alleged Adit, which reported about $465.9 million in regulatory assets under management as of March 31, repeatedly bought pre-IPO shares and then caused its client funds to purchase those shares at higher prices, allowing the defendants to pocket the difference.
“Investment advisers are entrusted with acting in their clients’ best interests,” Corey A. Schuster, chief of the SEC Enforcement Division’s asset management unit, said in statement. “Here, the defendants allegedly engaged in repeated fraudulent acts to benefit or enrich themselves.”
Munson rejected the SEC’s claims and said he agreed to the settlement in order to avoid spending resources on litigation.
“I want to be absolutely clear: I delivered results for my investors and completely reject these allegations,” he said in a text message.
The RIA managed more than 60 private funds with more than 1,000 investors during the period at issue, according to the SEC’s 49-page complaint. The funds gave investors access to shares in private companies before they went public.
According to the SEC, however, client capital wasn’t always used for the investments investors were promised.
In one case, the SEC detailed a SpaceX transaction that generated more than $1 million in undisclosed profit.
An Adit client fund acquired an interest equivalent to 13,100 SpaceX shares for about $420 per share, according to the complaint. An Adit general partner then acquired that interest at the same price before selling it to another Adit client fund for about $498 per share, the lawsuit said.
The about $78-per-share markup produced about $1.02 million in profit for the general partner, according to the SEC.
In another case, a retirement plan for an individual and family members invested $5 million in an Adit fund. But instead of investing the money as represented, the SEC said, Adit Ventures III immediately used the $5 million to purchase Flexport shares for itself.
Roughly a month later, it sold those shares for about $6.8 million, producing about $1.8 million in gross profit, the SEC said.
The regulator alleged such transactions were part of a broader pattern.
Adit sometimes used money borrowed from one client fund to purchase pre-IPO shares, then selling those shares to another client fund at a higher price, the SEC said. The defendants also inflated the “original purchase price” reported to investors, concealing the markup, the agency said.
The SEC said the tactics allowed the defendants to earn “tens of millions” in unauthorized fees and profits.
Adit also collected acquisition fees that weren’t permitted by fund documents, the SEC said.
In one case, an investor put $4.4 million into an Adit fund after receiving a side letter stating that no acquisition fee would be charged, the agency said. The SEC alleged Adit nevertheless collected more than $400,000 in acquisition fees.
Another co-investment fund that was supposed to pay only a 1% management fee was routed through another Adit fund, generating more than $600,000 in acquisition fees, the SEC said.
Two other funds were each charged millions of dollars in acquisition fees despite disclosures indicating they wouldn’t be charged, according to the complaint.
The SEC also alleged Munson improperly pledged assets belonging to client funds as collateral for a $10 million line of credit obtained by two Adit general partners. Part of the credit line was used to satisfy the defendants’ own obligations, the SEC said.
“That misconduct has no place in investment advisory relationships where clients count on investment advisers being their fiduciaries,” Schuster said.