Monroe settles with SEC over alleged SPAC conflicts

SEC imposes a $1m fine and issues a cease-and-desist order.

The Securities and Exchange Commission and mid-market lender Monroe Capital have settled a dispute over allegations that Monroe’s connections with certain special purpose acquisition companies (SPACs) had led it into unlawful conflicts of interest.

The SEC alleged that from at least June 2018 until February 2021, Monroe Capital was involved in the formation of three SPACs: Thunder Bridge I and Thunder Bridge II, both Cayman Islands companies, and MCAP, a Delaware corporation. Monroe Capital personnel and affiliates together held approximately 25 percent, 20 percent and 60 percent of the equity of the sponsors of Thunder Bridge I, Thunder Bridge II and MCAP, respectively. 

The SEC further alleged (and, under the settlement agreement, Monroe neither admits nor denies) that Monroe personnel had material conflicts of interest arising from these stakes. “For example,” reads the SEC’s statement, “In connection with the business combinations consummated by [the above-named Caymans companies and Delaware corporation] Monroe Capital caused private funds it advised to participate in ‘private investments in public equity’ (PIPES) to assist with financing SPAC business combinations”.

Separately, the SEC alleged, Monroe caused its private clients to purchase approximately $15 million of MCAP common stock on the open market. 

Monroe Capital said in a statement: “We are pleased to have successfully resolved this matter relating to disclosures pertaining to certain SPAC-related investments. Further, we have enhanced our related internal policies and procedures in keeping with our commitment to holding ourselves to the highest standards of regulatory compliance.”   

The SEC, pursuant to the settlement, instituted a cease-and-desist order. Monroe is ordered to stop committing or causing any violations of the pertinent statutes and regulations. For example, the cease-and-desist order references 206(2) of the Advisers Act, which prohibits any investments advisers, directly or indirectly, from “any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client”. Monroe was also fined $1 million.  

As the SEC observed in issuing this order, a finding under 206(2) does not imply intentional misconduct on Monroe’s part. A violation may rest on negligence.   

In recent years the SEC has become increasingly wary of SPACS as a means by which some private companies choose to circumvent the traditional hoops-filled process of going public. There is a feeling that, as SEC chair Gary Gensler put it more than a year ago, “investors deserve the protections they receive from traditional IPOs”.  

Monroe is a Chicago-based asset manager founded in 2004. Its website says it has $17 billion in committed and managed capital as of 1 April 2023. Under the leadership of chairman and CEO Ted Koenig, Monroe has developed what a Private Debt Investor Changemaker profile described as a “diverse strategic platform that straddles the likes of direct lending, asset-based lending, specialty finance, opportunistic credit and equity”.