Old Ironsides Energy misled Fund II investors about legacy track record by including a fund investment as a direct investment in legacy performance calculations, which had the effect of boosting returns, SEC said in a settlement document.
SEC censured the firm, which agreed to pay $1 million to settle the case, according to an SEC filing. Old Ironsides closed Fund II on about $1.3 billion in 2015. As of March 31, 2019, Fund II had deployed about $982 million, the filing said.
Old Ironsides did not admit or deny wrongdoing. “We welcome the opportunity to put this matter behind us and look forward to focusing all of our efforts on generating returns for our investors,” Andrea Haney, Old Ironsides chief compliance officer, said in an emailed statement.
Old Ironsides principals worked for 12 years for Liberty Energy, the oil and gas investment arm of insurance company Liberty Mutual. Managing Partners Scott Carson, Greg Morzano, Sean O’Neill and Daniel Rioux, along with other executives, left Liberty Energy and formed Old Ironsides in 2013.
Old Ironsides Energy Fund II marketing materials identified a large, legacy investment with strong returns as an early stage direct drilling investment over which Old Ironsides had direct control alongside project operators, according to the SEC filing.
Instead, the legacy investment in question was in a private fund advised by a third party, SEC said. Old Ironsides principals had made the investment when they managed a portfolio of oil and gas investments for a previous employer, SEC said.
Liberty Energy made direct drilling, private equity and private fund investments. Old Ironsides marketing materials said the firm would only invest in direct drilling, private equity and midstream assets, SEC said.
Fund II marketing materials showed a track record that included, among other things, direct drilling investments in the legacy portfolio, SEC said. However, the track record calculation also included the private fund investment made in 2002 that had strong performance as a direct drilling investment. But the private fund investment was a limited partner relationship rather than an investment directly controlled by the Old Ironsides principals, SEC said.
Fund II marketing materials did not explain how this fund investment differed from regular direct drilling investments, SEC said. The inclusion of the legacy fund investment had the effect of boosting the performance of direct drilling investments and early stage direct drilling investments, SEC said. Other early stage direct drilling investments in the legacy portfolio had lower returns, SEC said.
Fund II “marketing materials’ omission was significant for several reasons, including that the returns on the private fund investment improved the performance for legacy portfolio [direct drilling investments],” the SEC settlement documents said.
Action Item: Read the SEC document here: https://bit.ly/34R4iRo