Capital Dynamics to pay $275K penalty to settle SEC charges

Capital Dynamics, an investment firm with about $2.8 billion under management, settled with the SEC over improper allocation of fees and expenses to its U.S. Solar Energy fund, according to agency documents.

The settlement, made public earlier this month, required Capital Dynamics to pay a $275,000 civil penalty. The firm also reimbursed limited partners in the Solar Energy Fund for more than $1.4 million, including interest, for improper expenses, the SEC said.

New York-based Capital Dynamics declined comment. In settling, the firm neither admitted nor denied wrongdoing.

Capital Dynamics raised $282 million for Solar Energy Fund, the first investment pool in the firm’s clean-energy and infrastructure program it established in 2010, SEC said.

Fundraising from more than 15 global institutional LPs from the U.S., the U.K, Australia, Germany, Korea and Japan, along with wealthy individuals and family offices, closed in 2012.

As part of that program, Capital Dynamics entered into an agreement with employees managing the solar fund; established incentives and engaged contractors, the SEC said.

Solar Energy Fund focused primarily on commercial-scale photovoltaic projects across the U.S., including one of the largest U.S. rooftop projects in New Jersey. That team was led by David Scaysbrook early on, but after his departure, John Breckenridge took over as global head of the clean-energy and infrastructure business in 2015.

From March 2011 to July 2015, Capital Dynamics improperly charged the solar fund more than $1.2 million in expenses that should not have been directed to the fund based on the terms of the fund contracts, SEC said.

Those charges included $797,257 in legal fees the firm and certain employees incurred from negotiations under the renewables program agreements, SEC said. Also, the firm improperly charged $475,891 in employee expenses and consultant costs to the solar fund, the agency said.

Capital Dynamics voluntarily improved its compliance program, expanding compliance staff and enhancing employee training. A new compliance officer hired in 2014 led an initiative to evaluate the firm’s expense approval and review procedures, including internal compliance testing and reviewing historical expenses allocations, the SEC said. The review was led by an outside law firm and a compliance consulting firm.

The firm also revised its policies and procedures, establishing multiple layers of approval for expense allocations, SEC said. The firm ended up selling the assets of Solar Energy Fund to TerraForm Power for about $250 million in 2014.

The SEC’s investigation was conducted by Prashant Yerramalli and Gregory MacCordy and supervised by Panayiota Bougiamas and Mark Salzberg.

Action Item: See SEC order here: http://bit.ly/2vw4d2e

The U.S. Securities and Exchange Commission headquarters in Washington on June 24, 2011. Photo courtesy Reuters/Jonathan Ernst