Washington, D.C. (October 3, 2023) – On September 19, 2023, the U.S. Securities and Exchange Commission ("SEC") announced charges against Concord Management LLC ("Concord"), a Delaware limited liability company based in New York, and its principal Michael Matlin ("Matlin") for operating as unregistered investment advisers to a single client described in the SEC's complaint as a "wealthy former Russian political official living outside the United States." Although not specifically named by the SEC, according to recent media reports Concord's client is alleged to be Roman Abramovich (the "Client"), a Russian oligarch with ties to Vladimir Putin and the Russian Federation.
The SEC's complaint alleges that, from at least 2012 through 2022, Concord and Matlin provided continuous and regular supervisory and management services over a securities portfolio of private fund investments with billions of dollars of assets under management on behalf of the Client (estimated at $7.2 billion of assets under management in 112 different private funds as of January 2022). During this time, Concord received approximately $85 million in total compensation in the form of performance bonuses, fees, and reimbursed expenses.
Absent certain exemptions, the Investment Advisers Act of 1940 (the "Advisers Act"), requires firms or individuals that are in the business of advising others about securities investments for compensation to register with the SEC. As pertinent here, under Sections 203(a) and 203A of the Advisers Act, investment advisers with a principal office and place of business in New York have been required to register with the SEC if they have assets under management greater than $25 million and are not otherwise exempt from registration. The SEC's complaint charges Concord and Matlin with violating Section 203(a) of the Advisers Act by failing to register as investment advisers with the SEC and seeks injunctive relief, disgorgement with prejudgment interest, and civil penalties.
Attempts to Front Run Ukraine Sanctions
In March 2022, the Client was sanctioned by the United Kingdom and European Union, effectively freezing the Client's assets. The SEC's complaint describes how in late 2021 and early 2022 Concord and Matlin attempted to redeem or monetize certain private fund investments and transfer beneficial ownership of some portfolio investments to the Client's children just prior to the imposition of such sanctions.
The SEC complaint alleges that Matlin never directly discussed the Client's identity with Concord's personnel. Externally, however, firm employees allegedly described Concord as a fund of funds or a family office for high-net-worth European families. The Client's identity was only revealed on a transaction-by-transaction basis to fund administrators and private fund advisers with whom the Client had invested via communications with a single knowledgeable Concord employee.
Takeaways
While enforcement of EU and UK sanctions is outside the purview of the SEC, this enforcement action highlights how regulatory agencies such as the SEC have a broad tool kit and can play an important part in enforcing U.S. and international sanctions regimes.
Had the firm been registered and subject to SEC oversight, the identity of the Client would not have been so easy to obfuscate. The investment adviser registration requirements under the Advisers Act are designed to allow the SEC to collect information and to assess and monitor systemic risk at the investment adviser level and the private fund industry as a whole. When a firm such as Concord with billions of dollars of assets under management slips through the regulatory framework, it poses a significant risk to the these market participants, the national economy and the markets generally.
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