SEC v. Dolphin Associates III, LLC, Donald T. Netter — U.S. Securities and Exchange Commission Litigation Release No. 26203, dated December 23, 2024.
The SEC charged Dolphin Associates III, LLC and its principal, Donald T. Netter, for defrauding investors in a private fund. They allegedly withheld investor funds, charged excessive fees, and misled investors about the fund's liquidity and Netter's conflicts of interest.
In Plain English
Imagine you gave your piggy bank money to a friend to invest. This friend promised to keep it safe and grow it, but instead, they started taking your money out without asking and investing it in things they liked. They also charged you way too much for looking after your money and lied about why they couldn't give it back when you asked. The SEC stepped in to stop this and make them return the money.
Disclaimer: all facts are drawn from the SEC's own filings; the claims described are allegations unless and until a court rules or the parties settle, and some cases end in dismissal.
How the Alleged Scheme Worked
- Mismanaging Investor Funds Since November 2016, Dolphin Associates III, LLC and its principal, Donald T. Netter, began improperly suspending investor withdrawals from their private fund, Dolphin Limited Partnership III, L.P. They continued to cause the fund to make long-term investments in small-cap equities, effectively locking investors out of their money.
- Hiding Conflicts of Interest Netter personally owned the same securities that the fund was invested in. He failed to disclose this conflict of interest to investors, who were unaware that Netter was incentivized to prevent the fund from selling these securities.
- Charging Excessive Fees The defendants overcharged the fund approximately $41,000 in management fees. This was part of a fraudulent scheme where they failed to properly calculate these fees, thereby defrauding the fund and its investors.
- Failing to Provide Financial Reports Dolphin and Netter failed to obtain required annual audits for the fund and did not distribute financial reports to investors as mandated by the fund's organizational documents. This lack of transparency further obscured the fund's true financial status.
- Misleading Investors About Liquidity Investors were misled about the liquidity of the fund's portfolio. The defendants made materially misleading statements regarding the ability of investors to retrieve their funds and the efforts being made to return money, despite actively withholding withdrawals.
The Enforcement Action
The SEC filed charges against Dolphin Associates III, LLC and its principal, Donald T. Netter, for improperly withholding investor funds, charging excessive fees, and misleading investors. The complaint seeks injunctive relief, disgorgement plus prejudgment interest, and civil monetary penalties.
Named in this action: Dolphin Associates III, LLC, Donald T. Netter.