SEC charges Florida firm with fiduciary breaches linked to private funds

The SEC has charged a Florida-based investment adviser and its principal over reported fiduciary failures and repeated misstatements it knowingly made to investors in private funds they sub-advised and managed.

On Wednesday, the SEC issued charges against investment adviser FlowPoint Partners and its principal, Peter J. DeCaprio, for violations relating to the auditing of four private funds they managed, as well as failures to adhere to key fund requirements.

The SEC’s complaint said that between July 2020 and late 2023, FlowPoint and DeCaprio represented to investors that the funds were audited annually by an independent firm.

Established in 2020, the firm was originally headquartered in Boston, Massachussets before it was moved to Fort Lauderdale, Florida.

It had roughly $32 million in AUM as of August 2023, with 85 investors having stakes in the funds it managed, according to the complaint.

Its four funds were:

• Congress Street Business Trust;
• Essex Street Equity Opportunities Fund LP, a private equity venture capital fund, which was formerly known as the Crow Point Equity Opportunities Fund LP;
• Melcher Street Funding LLC, a “multi-strategy alternative investment vehicle”; and
• Summer Street Business Trust.

“Although they engaged an auditor to audit two of the four Funds, that auditor did not produce any audit reports,” the SEC said in a statement announcing its complaint.

Despite knowing the auditor wasn’t actually coming out with reports of its auditing, the regulator said FlowPoint and DeCaprio kept up their misstatements to investors.

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

The SEC’s complaint charges FlowPoint and DeCaprio 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 regulator’s complaint also accuses FlowPoint of failing to establish and enforce policies to prevent the misuse of nonpublic information, a violation of Section 204A of the Advisers Act. It said DeCaprio aided and abetted that breach.

FlowPoint and DeCaprio have agreed to settle the charges without admitting or denying the allegations.

The settlement, subject to court approval, includes permanent injunctions against future violations, a $145,000 civil penalty for each party, and a requirement for FlowPoint to review and update its fund audit disclosures. DeCaprio is also barred from serving as an officer or director of certain public companies for three years.