The Securities and Exchange Commission (SEC) has hit Prime Group with a $20.5 fine over “inadequate disclosures” of fees paid to an affiliate.

The SEC said the private equity firm failed to adequately disclose millions of dollars worth of brokerage fees that were paid to an estate agency firm owned by its chief executive.

Prime Group has agreed to pay a $6.5 million civil penalty and around $14 million in disgorgement and prejudgment interest to settle the charges.

The case concerns an investment fund Prime Group launched in 2017 to purchase self-storage real estate properties, which the SEC noted was primarily reliant on deal teams comprised of Prime Group’s employees and independent contractors to find and acquire “off-market” properties.

The SEC's assessment of the case was that Prime Group made “misleading statements” in the fund’s offering materials.

It said the issues related to areas including the firm's limited partnership agreement, private placement memorandum, and due diligence questionnaires.

Prime Group “failed to adequately disclose” that an affiliate would be receiving real estate brokerage fees in these and other areas, the SEC concluded.

“Funds, including those that invest in alternative asset classes, must ensure that their offering materials contain clear, accurate, and adequate disclosures,” explained Osman Nawaz, chief of the SEC’s enforcement division’s complex financial instruments Unit. “In particular, information related to payments made to affiliates, and the potential conflicts of interest embedded in such arrangements, is critical to investors’ decisions.”

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