SEC Charges Adit Ventures, CEO With Defrauding Pre-IPO Fund Investors
The U.S. Securities and Exchange Commission charged New York-based investment adviser Adit Ventures Management, LLC, chief executive officer Eric L. Munson and three affiliated general partners with defrauding investors and client funds in connection with pre-initial public offering share investments in companies including Klarna Holding AB and SpaceX, according to a complaint filed Aug. 10 in the U.S. District Court for the Southern District of New York.
The SEC alleges that from at least April 2019 through December 2024, Munson and the general partners – Adit Ventures, LLC; Adit Ventures II, LLC; and Adit Ventures III, LLC – used false claims and promises to induce investors to commit capital to Adit-managed funds, then misused client capital for their own benefit. In one instance, Munson allegedly told an investor that a fund already owned 32,000 shares of Klarna stock when it did not, inducing a $15 million commitment. In another, Munson allegedly promised to personally invest $5 million alongside a second investor’s matching contribution, then diverted that investor’s capital to fund a separate short-term trade in Flexport Inc. shares for the general partner’s own benefit, according to the complaint.
The complaint also alleges that the general partners bought pre-IPO shares – including stakes in SpaceX, Animoca Brands Corporation Limited, Esme Learning Solutions LLC, and Social Finance – at one price and resold them to their own client funds at a markup in more than 150 transactions, without the written disclosure and client consent the Investment Advisers Act of 1940 requires for such principal transactions. In one example, a general partner bought an interest equivalent to 13,100 SpaceX shares at $420 per share, then sold it to a different client fund weeks later at $498 per share, keeping the roughly $1 million spread.
Separately, the SEC alleges Munson arranged a $10 million line of credit for two of the general partners in late 2023 and pledged multiple client funds’ pre-IPO shares as collateral without disclosure or consent, transferring custody of the shares to the lender for about a year. According to the complaint, the loan was used in part to repay obligations the general partners owed to other client funds. The SEC also charges that Adit Ventures Management operated without registering as an investment adviser from 2016 until March 2024, claiming a venture capital exemption the agency alleges it did not qualify for.
“Investment advisers are entrusted with acting in their clients’ best interests,” Corey A. Schuster, chief of the SEC’s Asset Management Unit, said in a statement. “Here, the defendants allegedly engaged in repeated fraudulent acts to benefit or enrich themselves. That misconduct has no place in investment advisory relationships where clients count on investment advisers being their fiduciaries.”
The complaint charges Munson, Adit Ventures Management, and the general partners with violating the antifraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934, and the Advisers Act. It separately charges Adit Ventures Management with violating the Advisers Act’s registration requirements.
Without admitting or denying the SEC’s allegations, the defendants have consented to entry of a judgment, subject to court approval, permanently enjoining them from further violations of the charged provisions. The court will determine disgorgement, prejudgment interest, and civil penalties on the SEC’s motion. Munson separately agreed to an associational bar, with the right to apply for reentry after three years. None of the underlying conduct has been adjudicated on the merits.
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