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Tag: SEC

SEC, Hampton managing partner of BFM Fund settle charges

The Securities and Exchange Commission settled charges in early October against a Hampton-based managing partner of The BFM Fund and a limited liability company for allegedly breaching their fiduciary duties and misleading investors.

Himalaya Rao-Potlapally of Hampton is a managing partner of Portland, Oregon-based BFM Fund, a seed-stage private venture capital fund focused on founders who are Black, Indigenous and people of color. It was founded in September 2020 as the Black Founders Matter Fund I.

“Traditional venture capital … [is] a pretty small, closed system,” Rao-Potlapally told Virginia Business in May. “It’s really difficult for different types of founders to be able to access capital when there’s not a broader understanding of different lived experiences that then shape how different people articulate problems, think about solutions, all of that.”

Rao-Potlapally is the sole member and manager of LDP Partners, an unregistered investment adviser organized in May 2021 in Oregon but with its primary place of business in Hampton. Since July 2022, LDP Partners has managed one client, BFM Fund I, according to the SEC.

The SEC’s Oct. 7 order alleged that LDP Partners and Rao-Potlapally willfully violated anti-fraud provisions of the Investment Advisers Act of 1940. It issued cease-and-desist orders and censures to LDP Partners and Rao-Potlapally and ordered Rao-Potlapally to pay a $10,000 civil penalty. The company and Rao-Potlapally agreed to the cease-and-desist orders and sanctions without admitting or denying the SEC’s findings.

As of August, the BFM Fund had sold about $4.6 million worth of securities to 53 investors in multiple states, according to the SEC order.

The BFM Fund is one of seven venture capital fund managers that the Virginia Innovation Partnership Corp. is partnering with to invest $100 million in 100 Virginia-based startups. Gov. Glenn Youngkin announced the partnership, Virginia Invests, in May.

In its order, the SEC alleged LDP Partners and Rao-Potlapally breached their fiduciary duties to the BFM Fund and misled the fund’s investors in three ways:

First, in March 2023, according to the SEC order, LDP Partners and Rao-Potlapally, without notifying all BFM Fund investors, allegedly transferred $600,000 in cash out of the BFM Fund bank account to three different non-BFM bank accounts, including a personal checking account Rao-Potlapally shared with her spouse.

The investment adviser and Rao-Potlapally initiated the transfers after telling the BFM Fund’s advisory committee about concerns that the BFM Fund’s bank account would not be fully protected by the Federal Deposit Insurance Corp., according to the SEC order. In April 2023, a representative from the bank told LDP Partners and Rao-Potlapally that the funds could be returned to the BFM bank account and be fully protected by FDIC insurance, according to the SEC. In August and September 2023, LDP Partners and Rao-Potlapally returned the money, according to the SEC order.

Second, the SEC alleged that in July 2023, LDP Partners and Rao-Potlapally misled BFM Fund investors by providing a financial statement that misrepresented the $600,000 as still in the fund’s control. In November 2023, they distributed a financial statement disclosing the March 2023 transfers.

Third, the SEC alleged, LDP Partners took approximately $55,000 total in improper advance management fees from the BFM Fund in February 2023 and September 2023.

LDP Partners and Rao-Potlapally received approval from BFM Fund advisory committee members to take the fees in advance rather than on a monthly basis, but the fund’s controlling documents did not allow that and the advisory committee wasn’t authorized to allow advance fees, the SEC stated in its order.

Rao-Potlapally could not be reached for comment.

Maximus fined by SEC for proxy, reporting violations

Tysons-based federal technology contractor Maximus will pay $500,000 in civil penalties to settle a charge that it failed to disclose it had employed the siblings of one of its executive officers.

According to a settlement announced by the U.S. Securities and Exchange Commission Monday, Maximus appointed a business segment leader and longtime employee as an executive officer effective Oct. 1, 2019. That person, who is unnamed in the administrative proceeding, also had two siblings that were longtime employees — also unnamed — and each received an annual compensation of $120,000 or more, amounts in excess of SEC disclosure regulations. Maximus failed to disclose the relationship on annual reports in fiscal years 2019 through 2021 as well as in proxy statements filed from January 2020 through January 2022. Maximus was required to report the relationship on forms because of the siblings’ direct or indirect material interest in the transactions, according to the filing.

Maximus did not admit or deny the allegations made by the SEC and cooperated with the SEC’s investigation.

In an emailed statement to Virginia Business, company spokesperson Eileen Cassidy Rivera said Maximus is “pleased we were able to resolve this matter on an amicable basis with the SEC.”

Maximus was one of 36 Virginia companies to make the 2023 Fortune 1000 list, placing at No. 679. The company has more than 50,000 employees worldwide and runs Medicare and Affordable Care Act customer help lines.

DXC penalized by SEC over misleading financial info

Ashburn-based Fortune 500 IT company DXC Technology Co. has been penalized by the federal government for making “misleading” financial reports from 2018 to early 2020, according to the U.S. Securities and Exchange Commission. DXC did not admit or deny the charges, but consented to a cease-and-desist order and agreed to pay an $8 million penalty.

The $8 million SEC penalty must be paid within 28 days of the order Tuesday. The SEC reported that DXC “materially increased its reported non-GAAP net income by negligently misclassifying tens of millions of dollars of expenses as non-GAAP adjustments for so-called transaction, separation and integration-related (TSI) costs and improperly excluding them from its non-GAAP earnings.” 

DXC overstated its income by $83 million over three quarters in fiscal years 2019 and 2020, according to the SEC order. It misclassified certain expenses as transaction, separation and integration-related (TSI) costs when reporting non-GAAP — or general accepted accounting principles — income to investors. “Reasonable investors would have considered the … information to have been material in deciding whether to purchase DXC securities during the relevant period,” the order says. 

In a statement, DXC said it had cooperated with the SEC and resolved the matter, which it said was related to its formation in 2017 from the merger of Computer Science Corp. and the Enterprise Services business of Hewlett Packard Enterprise Corp. 

“DXC Technology has resolved this legacy matter, which related to the presentation of non-GAAP M&A costs principally related to the 2017 merger that formed DXC,” the company said in a statement. “Our current management team has proactively clarified its disclosure, reduced these non-GAAP costs and cooperated fully with the SEC, and is happy to put this matter behind us.”

The SEC report said that during 2018 through early 2020, members of DXC’s controllership reviewed the company’s TSI costs for accuracy and compliance to SEC standards. The former assistant corporate controller for external reporting questioned certain costs that were characterized as TSI costs but often received “inaccurate or incomplete information,” and often received answers to their questions orally, without written records of “how particular issues were resolved,” according to the SEC.

GAAP is a set of accounting standards followed by most businesses and the public sector, and are created and administered by the Financial Accounting Standards Board and the SEC, according to The Motley Fool. Companies use non-GAAP earnings to make their net income look better, often by eliminating non-recurring or other charges. A common form of non-GAAP measurements are earnings before interest, taxes, depreciation and amortization, or EBITDA.

By misclassifying TSI costs, the company “materially overstated its non-GAAP net income in three financial quarters” and “failed to evaluate the company’s non-GAAP disclosures concerning TSI costs.” 

The SEC found that DXC “negligently violated the anti-fraud provisions of the Securities Act of 1933 and reporting provisions of the federal securities laws.” 

In addition to paying the $8 million, DXC promised to develop and implement “appropriate non-GAAP policies and disclosure controls and procedures,” which must be completed within the next 120 days. 

During the SEC’s investigation, DXC voluntarily undertook a review of its TSI practices and made witnesses available, according to the order. It also has replaced “nearly all of its senior executive and financial leadership personnel who were present during the relevant period.”

Last week, DXC ended buyout talks after a “financial sponsor” — revealed by Bloomberg as Baring Private Equity Asia last year — failed to raise enough capital. In late September 2022, DXC had been approached by the private equity firm and worked with advisers on the potential takeover.

Chairman, President and CEO Mike Salvino was Virginia’s highest paid CEO in 2021, with his pay totaling $28.7 million, a 32% raise from 2020. DXC posted $16.265 billion in 2022 revenue, down 8.26% from 2021, which also saw a 9.44% decline from DXC’s 2020 revenue, $19.577 billion. Salvino joined the company in 2019 and moved the headquarters from Tysons to Ashburn in 2021 as it moved to a hybrid-friendly workplace.

Cvent goes public again

Tysons-based event software company Cvent Holding Corp. began trading on the Nasdaq Global Market Dec. 9 after closing its merger the day before with San Francisco-based SPAC Dragoneer Growth Opportunities Corp. II.

The move is Cvent’s second time going public. In 2016, Vista Equity Partners acquired it for $1.65 billion and took it private. The deal with Dragoneer was first announced in July and valued what was then Cvent Inc. at about $5.3 billion.

The company registered 487 million shares at a maximum price of $9.96 a share, according to Dragoneer’s S-4 filing with the U.S. Securities and Exchange Commission. It is trading under the ticker symbol “CVT.” As of 4 p.m. Thursday, shares were trading for $8.10.

Cvent adapted to provide remote events software in addition to its live event management services amid the pandemic. Its virtual events arm now generates more than $100 million in revenue, The Wall Street Journal reported.

Cvent’s return to the public market reflects changes in the industry, Cvent CEO and founder Reggie Aggarwal said in a statement.

“Organizations around the world want to get back to meeting — whether virtually, in-person or both with hybrid — and are leveraging technology more than ever to connect with their attendees,” Aggarwal said. “We’ve invested heavily in our virtual and hybrid event solutions so that now, no matter how our nearly 21,000 customers want to bring people together, Cvent can help them deliver more engaging, impactful experiences.”

Founded in 1999, Cvent provides an event marketing and management platform using the software-as-a-service model. The company has more than 4,000 employees. It reported $134.1 million in revenue for the third quarter of 2021, a 13% increase from the same quarter last year.

Genworth launches IPO for mortgage insurance subsidiary

Nearly five months after it was first announced, Henrico County-based Fortune 500 insurer Genworth Financial Inc. on Monday launched an initial public offering for its private mortgage insurance subsidiary, Raleigh, North Carolina-based Enact Holdings Inc.

Genworth Holdings Inc. (GHI), a wholly owned subsidiary of Genworth Financial, is offering 13.31 million shares of common stock in Enact at between $19 to $20 per share. Enact is expected to trade on the Nasdaq Global Select Market under the ticker symbol “ACT.”

GHI expects to grant the underwriters a 30-day option to purchase up to an additional 1.99 million shares of Enact’s common stock at the initial public offering price, less the underwriting discount.

Investment funds managed by Coral Gables, Florida-based Bayview Asset Management LLC have agreed to purchase shares of Enact stock in a concurrent private sale at the IPO price per share, minus the underwriting discount. Bayview has agreed to purchase 14.66 million shares if the IPO price is less than or equal to $22 per share, or 4 million shares if the IPO price is above $22 per share but less than or equal to $24. Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC are serving as lead book-running managers for the proposed offering.

After initially filing a proposed IPO for the subsidiary with the SEC in April, then delaying the process in May, Genworth amended its SEC filing regarding the Enact IPO on Monday.

In April, Genworth formally terminated its long-delayed $2.7 billion acquisition by China-based Oceanwide Holdings Group Co. Ltd. The company had first mentioned in January the possible IPO of its mortgage insurance business, describing it as a contingency plan if the Oceanwide acquisition fell through.

Genworth reported $178 million in 2020 net income. The company has about 5,000 employees.

SEC charges Herndon-based tech company, CEO with fraud

The Securities and Exchange Commission announced charges Thursday against Herndon-based Kelvin Boon LLC/Boon.Tech and its CEO, Rajesh Pavithran, for fraud and registration violations in connection with a $5 million initial coin offering of digital asset securities.

Without admitting or denying the SEC’s findings, Pavithran and his company agreed to settle the charges by consenting to the issuance of the SEC order, which requires Boon.Tech to disgorge the $5 million raised in the ICO plus prejudgment interest of $600,334.

Between November 2017 and January 2018, Boon.Tech and Pavithran raised approximately $5 million by selling Boon Coins to more than 1,500 investors in the U.S. and worldwide, according to the SEC’s order. The ICO was intended to raise funding to develop and market a platform to connect employers posting jobs with freelancers seeking work.

The SEC found that the coins were offered and sold as investment contracts and were therefore securities, and that Boon.Tech and Pavithran did not register the ICO as required. Further, the SEC alleges that Pavithran and Boon.Tech made false and misleading statements, including claims that Boon Coins were stable and secure because Boon.Tech’s platform eliminated volatility inherent in the digital asset markets by using patent-pending technology to hedge Boon Coins against the U.S. dollar, when in fact Boon.Tech had no such technology or a patent pending.

Boon.Tech and Pavithran also misrepresented to investors that Boon.Tech’s platform was faster and more scalable than competitors because it was built on Boon.Tech’s own blockchain, according to the SEC, when in actuality the platform was being developed on the same public blockchain as its competitors.

“Investors are entitled to truthful disclosures from issuers of securities, whether digital or otherwise,” said Kristina Littman, chief of the SEC Enforcement Division’s cyber unit.  “Pavithran and Boon.Tech defrauded investors by convincing them to fund this endeavor based on the allure of innovation that simply did not exist.”

The SEC’s order finds that Boon.Tech and Pavithran violated the antifraud and registration provisions of the federal securities laws.  The order also requires Boon.Tech and Pavithran to destroy all Boon Coins in their possession, issue requests to remove Boon Coins from any further trading on all third-party digital asset trading platforms and refrain from participating in any future offerings of digital asset securities. Further, the order requires Pavithran to pay a penalty of $150,000 and bars him from serving as an officer or director of a public company.