(Article from Registered Funds Regulatory Update, January 2025)
For more information, please visit the Registered Funds Resource Center.
The SEC recently settled charges with Marathon Asset Management, L.P., a registered investment adviser to private funds, for willfully violating the anti-fraud provisions of the Advisers Act and failing to adopt and implement written policies and procedures designed to prevent the misuse of material, non-public information relating to its participation on ad hoc creditor committees.
According to the Order, Marathon invested in distressed corporate bonds and other similar debt in the United States, Europe and Asia as a core business strategy. As part of this strategy, Marathon frequently participated in ad hoc creditor committees during which participants often received MNPI and/or worked with financial advisers or consultants that were tasked with analyzing MNPI through which it inadvertently received MNPI.
In August 2020, Marathon participated in an ad hoc committee composed of unsecured creditors of a distressed foreign issuer in which Marathon owned bonds, to explore a potential restructuring. The committee retained a financial adviser to act partly as a liaison between the committee and issuer. The financial adviser signed an NDA with the issuer in October 2020 and thereafter began to receive MNPI from the issuer regarding the restructuring to which Marathon was not privy. Although Marathon did not sign an NDA with respect to the issuer or the committee until November 5, 2020, the financial adviser provided guidance and information to Marathon throughout the duration of the committee, including the period in which Marathon had not executed an NDA. Nonetheless, Marathon continued to build its position in the issuer throughout the time it participated on the committee, only restricting its trading in the issuer in tandem with its entry into the NDA. Furthermore, neither the committee nor Marathon received any written representation regarding the financial adviser’s handling of issuer-related MNPI, nor is there evidence that Marathon conducted any due diligence related to the financial adviser’s handling of MNPI.
As such, the Order found that while Marathon had general policies and procedures related to the treatment of MNPI, they were not sufficiently tailored to address the specific risks from its participation on ad hoc creditor committees.
Accordingly, the SEC charged Marathon with, among other things, willfully violating the anti-fraud provisions of the Advisers Act and for failing to adopt policies and procedures to prevent the misuse of MNPI as required by the Advisers Act. Without admitting or denying the findings set forth in the Order, Marathon agreed to a cease-and-desist order, censure, and $1.5 million civil monetary penalty.
In the Matter of Marathon Asset Management, L.P., SEC Admin. File No. 3-22219 (Sept. 30, 2024), available at https://www.sec.gov/files/litigation/admin/2024/ia-6737.pdf.