SEC Fines Real Estate Private-Equity Firm Prime Group
Private-equity real-estate manager will pay $20.5 million over payments to an affiliated company
Real-estate investment firm Prime Group Holdings will pay $20.5 million to settle allegations of inadequate disclosures around brokerage fees it charged investors, U.S. regulators said Tuesday.
The Securities and Exchange Commission said Prime, a private-equity firm that buys and manages self-storage properties, didn’t disclose that millions of dollars in brokerage fees paid by fund investors between 2017 and 2021 went to a firm owned by Prime’s chief executive.
Prime agreed to pay a $6.5 million penalty and repay investors about $14 million, including interest, to settle the charges, the SEC said.
Prime neither admitted nor denied the charges as part of the settlement. A firm spokesman declined to comment.
Neither the firm’s founder and chief executive, Robert Moser, nor his affiliated brokerage firm were named in the SEC order or charged with any wrongdoing.
Based in Saratoga Springs, N.Y., Prime manages about $4 billion in investor capital, primarily to buy and manage self-storage facilities.
The storage sector has seen surging investor interest in recent years due to its typically recession-resistant profile and its strong performance during the coronavirus pandemic. Prime recently rode this investor demand to close the largest-ever fund dedicated to the asset class, raising $2.5 billion for its third self-storage fund.
The SEC order relates to a roughly $700 million fund formed in early 2017. The fund acquired properties through deal teams that sought out mom-and-pop storage operators and aimed to persuade them to sell their properties to Prime’s fund, according to the settlement.
These deal teams were compensated in part through a fee paid by the fund to the brokerage firm owned by Prime’s CEO. From 2017 through 2021 this company received nearly $18 million from the fund, according to SEC documents.
Prime’s fund documents didn’t tell investors that some fees would be paid to an affiliate of Prime, or that these payments could create the potential for conflicts of interest, the SEC said. As a result, the fund documents were inadequate and misleading, the regulator alleged.
“Information related to payments made to affiliates, and the potential conflicts of interest embedded in such arrangements, is critical to investors’ decisions,” said Osman Nawaz, who heads the SEC enforcement division’s complex financial instruments unit.
Under Chair Gary Gensler, the SEC has been trying to increase scrutiny of the $27 trillion private-funds industry. The agency said that in its examination of private-fund managers it often encounters poor fee disclosure and hidden conflicts of interest, among other problems.
In late August the SEC proposed a broad slate of rules that would require private-equity managers to give investors more information about the fees they charge, among many other changes. Lobbyists for private-fund managers last week sued the agency to block those proposed rules.