Colony Capital Investment Advisors Fined $350K for Undisclosed Affiliate Deals

Colony Capital Investment Advisors LLC, a registered investment adviser whose advisory business consists primarily of advising Colony’s multiple private real estate investment funds, was censured and fined $350,000 by the U.S. Securities and Exchange Commission for failing to adhere to agreed-upon procedures concerning the disclosure and approval of expenses allocated to eight of the private real estate funds it managed.

According to the SEC, the partnership agreements of the funds managed by Colony stipulated that any transactions with Colony’s affiliates, which could potentially create conflicts of interest, must be fully disclosed to the funds’ limited partners in advance. Furthermore, the transactions required approval from the funds’ advisory committees or a majority of the limited partners, and, in one case, that material amounts paid to affiliates be disclosed to the fund’s advisory committee.

However, from at least 2017 to 2021, Colony failed to provide the required disclosures and obtain the necessary approvals for approximately 40 agreements between the funds and its affiliates. These agreements encompassed various services, including fund-level administration and asset-level management.

Although Colony generally disclosed the expenses after they were incurred and paid, it did not meet the pre-approval requirements outlined in the agreements. Additionally, in 2020, Colony failed to disclose, in a timely fashion, to the advisory committee of one fund certain expenses incurred by that fund in transactions with affiliates.

Along the same lines, the SEC stated that Colony lacked adequate policies and procedures to prevent such violations of the Investment Advisers Act of 1940. The firm’s Code of Conduct and Regulatory Compliance Manual did not address the use of affiliated service providers, the necessary disclosures and approvals, or the determination of arm’s-length transactions.

As a result, Colony violated multiple sections of the Advisers Act. The SEC did report, however, that firm was cooperative with SEC staff and made voluntary reimbursements to the affected funds.

Without admitting or denying the findings, Colony agreed to a cease-and-desist order, a censure, and a civil money penalty of $350,000.

Colony Capital Investment Advisors LLC is an RIA that manages several private equity funds, either directly or through an affiliate. As of May 2024, Colony had approximately $802 million in regulatory assets under management.

Click here to visit The DI Wire directory page.