The SEC settled with the investment adviser for four private oil and gas funds over the miscalculation and inadequate disclosure of approximately $1.1 million in management fees and $449,000 in management-related expenses.
The firm, Denver-based Coachman Energy Partners LLC, failed to adequately disclose its methodology for calculating the management fees and management-related expenses it charged to the funds from 2011 through 2014, the Securities and Exchange Commission said in an administrative proceeding. In addition, the SEC said that Randall D. Kenworthy, the firm's chief executive, caused Coachman's inadequate disclosures regarding its fee and expense calculations in the private funds' operative documents and in Coachman's ADV Forms filed with the Commission.
The SEC also said that through Mr. Kenworthy, Coachman caused one of the funds to enter into a transaction with an affiliated entity without proper disclosure or obtaining investor consent to the conflicts of interest associated with the transaction.
The four funds were: Coachman Energy Land II LLC, Bakken Income Fund LLC, Bakken Drilling Fund III LP and Bakken Drilling Fund IV LP.
Bakken Income Fund, which raised $20.6 million from 309 investors as of a filing with the SEC in Feb. 2015, filed for bankruptcy in Denver on Oct. 17, 2016, according to the White Law Group, a law firm specializing in securities fraud.
As part of the settlement, Coachman and Mr. Kenworthy agreed to censures and to cease and desist from committing or causing any violations and any future violations of sections of the Investment Advisers Act. Coachman also agreed to disgorge over $2 million plus interest, for a total of $2.25 million, which will be offset by $1.36 million in management fees and expenses owed by the funds to Coachman. As a result, the exact net payment comes to $891,507.
Coachman and Mr. Kenworthy each also agreed to a civil penalty of $50,000.