The U.S. Securities and Exchange Commission (SEC) has charged New York-based investment adviser Adit Ventures Management LLC, its CEO Eric Munson, and three affiliated general partners—Adit Ventures LLC, Adit Ventures II LLC, and Adit Ventures III LLC—with the alleged defrauding of investors and client funds.
The charges concern investments in pre-IPO shares, including companies such as SpaceX and Klarna. According to an SEC complaint, the defendants used false claims and promises to persuade investors to contribute capital to funds managed by Adit from at least April 2019 through December 2024.
The SEC alleges that Munson solicited an investor by falsely claiming that a fund held shares of stock in a private, pre-IPO company. The complaint, filed in the U.S. District Court for the Southern District of New York, states the defendants violated fiduciary duties by purchasing pre-IPO shares and then causing client funds to buy those same shares at a higher price.
The SEC alleges the defendants misrepresented the true cost of acquiring these shares to investors and did so without obtaining the required consent for these transactions.
Unauthorized use of client capital
The defendants are alleged to have regularly used client capital for their own benefit. This included taking unsecured loans from funds on favorable terms, which the SEC states were not authorized by fund documents and generally not disclosed to investors.
The amount of a line of credit for which the defendants allegedly improperly pledged client assets as collateral.
The SEC alleged that parts of this $10 million line of credit were used to pay off the defendants' own obligations. Additionally, the SEC alleged that the defendants overcharged client funds by millions in unauthorized acquisition fees.
The SEC also alleges that Adit Ventures Management failed to register as an investment adviser.
Investment advisers are entrusted with acting in their clients' best interests.
Here, the defendants allegedly engaged in repeated fraudulent acts to benefit or enrich themselves.
The complaint charges Munson, Adit Ventures Management, and the General Partners with violating the antifraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Advisers Act of 1940. Adit is also charged with violating the registration provisions of the Investment Advisers Act.
