In re FIRST RESERVE

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UNITED STATES OF AMERICA 
Be fore  the  
SECURITIES AND EXCHANGE COMMISSION 
INVESTMENT ADVISERS ACT OF 1940 
Re le ase No. 4529 / Se ptember 14, 2016 
ADMINISTRATIVE PROCEEDING 
File No. 3-17538 
In the  Matter of 
FIRST RESERVE 
MANAGEMENT, L.P., 
Re s pondent. 
ORDER INSTITUTING CEASE-AND-
DESIST PROCEEDINGS PURSUANT TO 
SECTION 203(k) OF THE INVESTMENT 
ADVISERS ACT OF 1940, MAKING 
FINDINGS, AND IMPOSING A CEASE-
AND-DESIST ORDER 
I. 
The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
and-desist proceedings  be, and hereby are, instituted  pursuant to Section  203(k)  of the Investment 
Advisers Act of 1940 (“Advisers Act”), against First  Reserve Management, L.P. (“First Reserve” 
or “Respondent”). 
II. 
In anticipation  of the institution  of these proceedings,  Respondent  has submitted  an Offer 
of Settlement (the “Offer”), which  the Commission  has determined to accept.  Solely  for the 
purpose of these proceedings  and any other proceedings  brought  by  or on behalf of the 
Commission,  or to which the Commission  is  a party, and without  admitting  or denying  the findings 
herein, except as to the Commission’s jurisdiction  over Respondent and the subject matter of these 
proceedings,  which  are admitted,  Respondent consents to the entry of this  Order Instituting  Cease-
and-Desist Proceedings Pursuant to Section  203(k)  of the Investment Advisers Act of 1940, 
Making  Findings,  and Imposing  a Cease-and-Desist Order (“Order”), as set forth below.  

 
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III. 
 
 On the basis of this Order and Respondent’s Offer, the Commission  finds
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 that: 
 
SUMMARY 
 
1. This  matter concerns certain financial  conflicts  of interest on  the part of private 
equity fund advisory  firm First  Reserve that were not adequately disclosed  to its private equity 
fund  clients  (the “Funds”) or to investors  in  the Funds. 
 
2. At various  times  between approximately  2010  and 2015, First Reserve allocated the 
following expenses to the Funds without making  appropriate  disclosures or receiving  effective 
consent: 
 
(i) certain fees and expenses of two entities  formed as advisers to a Fund 
portfolio company  that was a pooled  investment  vehicle,  enabling  First 
Reserve to avoid  incurring  certain expenses in  connection  with  providing 
advisory  services to the Funds; and 
 
(ii) certain premiums for a liability insurance policy covering First Reserve for 
risks not  entirely  arising  from its management of the Funds,  where the 
Funds’ governing  documents provided  that the Funds only would  pay 
insurance expenses relating  to the affairs of the Funds. 
 
3. In addition, First  Reserve negotiated a legal  fee discount from a law firm for itself 
for certain services based on  the large volume  of work the law firm  performed for the Funds, while 
the Funds did  not receive a discount on the same services.  Because of the conflict of interest First 
Reserve faced as the beneficiary of the discount, First Reserve could not consent on behalf of the 
Funds to First Reserve’s practice of accepting the discount. 
 
4. Based on the foregoing  conduct,  First  Reserve violated Sections 206(2) and 206(4) 
of the Advisers Act and Rule  206(4)-8  thereunder. 
 
5. First  Reserve also violated Section  206(4) of the Advisers Act and Rule 206(4)-7 
thereunder by failing  to adopt and implement  written policies and procedures reasonably  designed 
to prevent the above violations  of the Advisers Act. 
 
                                              
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  The findings  herein are made pursuant to Respondent’s  Offer and are not binding  on  any 
other  person or  entity  in this  or any other  proceeding. 

 
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RESPONDENT AND OTHER RELEVANT ENTITIES 
 
Re s pondent 
 
6. Firs t Re serve Management, L.P. (“First Reserve” or “Respondent”) is a Cayman 
Islands limited  partnership with  a principal  place of business  in  Greenwich,  Connecticut.  First 
Reserve has been registered with  the Commission  as an investment  adviser  since March 2012.   
Founded  in 1983, First  Reserve advises approximately  twenty private fund clients.  As of 
December 31, 2015, it reported assets under management of over $12 billion. 
 
Othe r Re levant Entities 
 
7. Firs t Re serve Fund X, L.P., Firs t Re serve Fund XI, L.P., Firs t Re serve Fund 
XII, L.P., Firs t Re serve Fund XII-A Paralle l Ve hicle , L.P., and Firs t Re serve Fund XIII, L.P. 
(respectively, “Fund  X,” “Fund  XI,” “Fund  XII,” “Fund  XII-A,” and “Fund  XIII,” and collectively, 
and together with other private  funds managed by First  Reserve, the “First Reserve Funds” or 
“Funds”) are among private funds  managed by First Reserve that are the subject  of this  proceeding. 
 
8. Firs t Re serve Momentum L.P. (“FRM”) is a private fund that is a portfolio 
company  of Fund  XII and Fund XII-A. 
 
9. Firs t Re serve Momentum (US), LLC (“FRM US”) is a Delaware limited  liability 
company  with  a principal  place of business in  Houston,  Texas.  FRM US has been registered with 
the Commission  as an investment  adviser since October 2014.  During  the relevant period,  FRM 
US reported approximately  $200  million  in  assets under management in  one discretionary  account 
(i.e., FRM). 
 
10. Firs t Re serve Momentum LLP (“FRM UK”) is a foreign  adviser not registered 
with  the Commission and is the parent company  of FRM US.  Both FRM US and FRM UK are 
subsidiaries  of FRM and provide  advisory  services solely to FRM. 
 
FACTS 
 
Background 
 
11. First  Reserve provides investment  advisory  services to the Funds,  which  make 
investments  primarily  in  companies  in  the energy and natural  resources industries.  First Reserve 
markets itself  as the largest and longest-running  private equity  firm  to focus exclusively  on energy-
related investments and touts  its specialized  knowledge  of the energy industry  as a competitive 
advantage.  First Reserve further promotes its management team’s vast experience in energy 
investing, as well as the firm’s history of diversifying  investments across different segments of the 
energy industry,  as factors contributing  to its ability  to predict market trends,  thereby leading  to its 
success in selecting  investments.  First Reserve also claims,  in  certain marketing  and fundraising 
materials,  that its extensive knowledge  of the energy industry  and familiarity  with  industry  players 
allows  it  to access promising  deal avenues and to recruit top  managers for portfolio  companies. 
 

 
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12. The Funds are each organized  as limited  partnerships.  A First  Reserve affiliate 
serves as the general partner of each of the Funds  and has authority  to make all  decisions  for, and 
act on behalf of,  the Funds.  A First Reserve affiliate also  serves as the investment  adviser to each 
of the Funds.  The terms of each Fund’s operations, including  provisions concerning expenses, are 
set forth in  each Fund’s governing documents, including  a limited partnership agreement (“LPA”).  
The terms of the investment  advisory  services that First  Reserve or its affiliate  provides  to each of 
the Funds,  and the management fee that First Reserve or its affiliate  receives from each of the 
Funds  for such services, are set forth in  the LPA for each of the Funds  as well  as in  an investment 
advisory agreement (“IAA”) that First Reserve or its affiliate enters into with each of the Funds. 
 
13. Beginning  in  late 2014,  staff of the Commission’s Office of Compliance 
Inspections and Examinations (“OCIE”) conducted an examination of First Reserve and, in 2015, 
raised concerns about certain expenses that First Reserve’s general partner affiliate had allocated to 
the Funds.  During  and after the examination,  First Reserve voluntarily  reimbursed  certain 
expenses and made other payments to the Funds,  as described herein. 
 
Fe e s and Expe nses of Two Entitie s Forme d as  Advisers to a Portfolio Company 
 
14. In late 2013, First Reserve’s general partner affiliate caused Funds XII and XII-A to 
make an investment  in  FRM,  which  itself is  a pooled  investment  vehicle.   Funds  XII and XII-A 
provided  seed capital to FRM for the purpose of funding  investments  by  FRM.  In particular,  First 
Reserve formed FRM for the purpose  of seeking out  and making  investments  on  behalf of Funds 
XII and XII-A in  small  oil  field  equipment  and services companies in  the energy industry,  and 
FRM made investments in  two such energy companies in  2014.  Investments in  pooled  investment 
vehicles  such as FRM are not expressly prohibited  by  the LPAs for Funds  XII and XII-A.  
However, the LPAs for Funds  XII and XII-A state that Funds  XII and XII-A will  make 
investments “solely  in companies  involved  in  the energy and natural  resources industries.”  With 
the exception of FRM,  Funds XII  and XII-A invested directly in  companies  involved  in  the energy 
and natural resources industries  and did  not  invest  in  any other pooled  investment  vehicles. 
 
15. Funds  XII and XII-A collectively own approximately 75% of FRM, while  a group 
of current and former executives of a multinationa l  oil field  services company  owns approximately 
25% of FRM.  FRM’s owners (including  Funds XII and XII-A, and consequently First Reserve’s 
general partner affiliate) retain investment  discretion  over the assets of FRM. 
 
16. First  Reserve and the multinational  oil  field  executive group formed and organized 
FRM UK and FRM US as subsidiaries  of FRM to provide  investment  management services to 
FRM.  FRM UK and FRM US were formed solely  for the purpose of employing  the management 
team that provides  investment  management services to FRM.  FRM UK and FRM US provide 
services only to FRM and do not have any other business (for example, FRM is FRM US’s only 
advisory  client).   FRM’s management team is composed of different individua ls  than First 
Reserve’s management team, but certain First Reserve employees serve on the board of FRM’s 
general partner and as members of the Investment Advisory  Committee  of FRM UK, and,  by 
virtue  of Fund  XII and XII-A’s indirect ownership  of FRM UK and FRM US, First  Reserve 
essentially  exerted control  over the members and employees of FRM UK and FRM US.  The 

 
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following  is a simplified illustration  of the FRM ownership  and management structure described 
above. 
 
 
 
17. First  Reserve caused Funds XII and XII-A to enter into  a limited  partnership 
agreement as to FRM with the other partners of FRM, which permitted  FRM UK to call  capital 
from Funds  XII and XII-A for their  approximately  75% pro rata share of FRM UK’s 
organizational  and start-up expenses.  First Reserve also caused FRM’s general partner and FRM 
UK to enter into  an advisory  agreement, pursuant to which FRM UK would  be paid,  at a minimum, 
an annual fee of 2% of committed capital amounts,  plus any additional  fees to which  the parties 
later agreed.  There was no cap on the total payment  of fees to FRM UK (which could  then be 
passed on to FRM US). 
 
18. Beginning  in  late 2013,  a proportionate  share of the Fund  XII and XII-A combined 
investment  in  FRM was used to pay the formation  and various  operation  expenses of FRM UK and 
FRM US.  Through  mid-2015,  more than $7 million  of the Funds’ approximately $40 million 
combined capital contribution  to FRM, or more than 15% of the Funds’ investment in FRM 
through that time, paid for the Funds’ proportionate share of expenses related to FRM UK and 
FRM US.  Because Funds XII and XII-A are only  entitled  to receive their proportionate  share of 
any proceeds that FRM may generate upon  the realization  of its investments, Funds  XII and XII-A 
may not achieve a return on the amounts they paid in  respect of expenses of FRM UK and FRM 
US.  The amounts Funds  XII and XII-A paid  in  respect of expenses of FRM UK and FRM US 
were used for, among  other things,  general office operating  costs, such as rent, utilities,  and 
salaries, as well  as costs related to the formation  of FRM UK and FRM US as investment  advisory 
entities,  including  regulatory  registration  costs. 
 

 
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19. First Reserve’s decision to make the investment in FRM, and to structure the 
investment  such that FRM (and ultimately Funds XII and XII-A) paid the expenses of FRM UK 
and FRM US, enabled First  Reserve to avoid  incurring  certain administrative  expenses and certain 
expenses in  connection  with  providing  investment  advisory  services to the Funds.  First Reserve 
did  not disclose  to Funds  XII and XII-A or their advisory  boards, or to investors in  Funds  XII and 
XII-A, neither  prior  to the commitment  of capital nor prior  to the expenses being  incurred,  that 
capital  contributed  to FRM by  Funds XII and XII-A would be used to pay the significant  costs and 
fees of establishing  and operating  FRM UK and FRM US as investment  advisory  entities  to FRM.  
Because of the relationships  between and among  First  Reserve, FRM, FRM UK, and FRM US,  the 
capital  contributed  to FRM by  Funds XII and XII-A that was used to pay fees to FRM UK and 
FRM US gave rise to a financial  conflict  of interest that First Reserve did  not disclose. 
 
20. The LPAs for Funds XII and XII-A further provide  a mechanism  by which  First 
Reserve can present potential  conflicts  of interest for review and approval  to an Advisory  Board 
comprised  of investors  in  the Funds.  The LPAs also provide  that, if  First Reserve consults with  the 
Advisory  Board concerning  a potential  conflict  of interest and discloses  all  relevant facts to the 
Advisory  Board,  and the Advisory  Board waives or approves a course of action as to any conflict, 
then First Reserve can proceed to take actions without  exposing  itself to any potential  liability  to 
Funds.  Here, however, First Reserve did  not consult  the Advisory  Board concerning  any potential 
conflict  of interest arising  from the use of any portion  of the capital  contributed to FRM by  Funds 
XII and XII-A for the formation  and operation  costs of FRM UK and FRM US. 
 
21. In June 2015,  following  the OCIE staff examination,  First  Reserve voluntarily 
reimbursed  a total  of $7,435,737  to Funds  XII and XII-A, representing  the proportionate  share of 
Fund  XII and XII-A’s combined  investment  in  FRM that paid  the expenses of FRM UK and FRM 
US.  In the process of reimbursing  Funds XII and XII-A,  First Reserve provided  written notice  to 
the investors in  Funds  XII and XII-A of the nature of the reimbursement  as well  as its planned 
practice as to these expenses going  forward.  First Reserve has voluntarily  undertaken to revise its 
expense allocation  practices concerning FRM such that, going  forward, First  Reserve or its general 
partner affiliates  will  bear the costs of FRM UK and FRM US attributable  to Fund  XII and XII-A’s 
proportionate  share of their  combined  ownership  interest in  FRM. 
 
Ins urance  Pre miums 
 
22. The Funds’ LPAs provide that the Funds will bear the out-of-pockets costs of any 
insurance “relating to the affairs of” the Funds. 
 
23. Beginning  in  at least 2008, First  Reserve caused the Funds to pay 100% of the 
premiums for a liability  insurance policy covering  First  Reserve for various risks, some but not  all 
of which arise out of First Reserve’s management of the Funds. 
 
24. In 2013,  First Reserve retained a third  party to conduct  a periodic compliance 
review, which  resulted in  a recommendation  for First Reserve to reconsider its insurance premium 
allocation  practices. 
 

 
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25. As a result of the review, First  Reserve revised its practice such that First Reserve 
prospectively will bear the portion of the insurance premiums attributable  to risks  that do  not 
directly  arise from its management of the funds.  By previously  allocating  all  insurance premiums 
to the Funds and no portion to itself, First Reserve acted in contravention of the Funds’ governing 
documents. 
 
26. First  Reserve also retroactively  reimbursed the applicable Funds  for First Reserve’s 
share of insurance premiums for prior  coverage periods.  First Reserve reimbursed a total  of 
$733,012  to various  Funds (including  Funds X,  XI,  XII,  XII-A, and XIII), representing its share of 
past premiums.  In the process of reimbursing these amounts to the Funds,  First  Reserve provided 
written notice to the applicable Funds’ investors of the nature of the reimbursements  as well as its 
revised practice. 
 
Le gal Fe e Discount 
 
27. Between at least 2010 and 2014, an outside law firm (the “Law Firm”) provided 
legal  services to each of First Reserve and various  Funds.  First Reserve arranged for and 
coordinated  all  legal  services that the Law Firm performed for both  First  Reserve and the Funds.  
During and before the relevant period,  the Law Firm  performed a substantially greater volume  of 
services for the Funds  than for First Reserve and consequently generated significantly more legal 
fees in connection  with  services it provided  to the Funds.   The disparity  in  the quantity  of the Law 
Firm’s services and fees for Fund-related work versus adviser-related work was known  to First 
Reserve, and indeed is  common  and expected based on  the differing nature of the legal  services 
each type of entity  typically  needs in  connection  with  its particular  business and operations.  Based 
on the high  volume  of Fund-related  work,  First Reserve asked whether it could  receive any 
discount  from  the Law Firm.  As a result, the Law Firm offered and First Reserve accepted a 
discount  on  the Law Firm’s fees for certain services for First Reserve, but the Funds did  not 
receive any discount  for the same services (although  the Funds  received certain discounts  on other 
types of services).  First Reserve accepted the benefit of the recurring disparate discount  from the 
Law Firm for itself and did  not  negotiate or attempt to negotiate a similar,  or any,  discount  for the 
Funds for the same services (although  the Funds  received certain discounts for other services). 
 
28. Beginning  in  early 2013,  after capital was already committed  to the Funds, First 
Reserve disclosed in  its  Form ADV the possibility  that it  could  receive service provider  discounts 
that might  be more favorable than those received by  the Funds.   However, First  Reserve did not 
disclose  to the Funds or investors  in the Funds at any time that First Reserve in fact received a 
discount on  certain services from  the Law Firm while  the Funds  did  not receive a discount  on  the 
same services.  Because of its conflict of interest as the beneficiary of the discount, First Reserve 
could not effectively consent on behalf of the Funds to First Reserve’s acceptance of the discount 
while First  Reserve knew the Funds did  not also receive the same discount. 
 
29. In November and December 2014, following  the OCIE staff examination,  First 
Reserve voluntarily paid  to the applicable  Funds their pro rata share (based on committed  capital 
during  each calendar year) of the amount  of the discount  that First Reserve received from the Law 
Firm  during  the relevant period.   First  Reserve paid a total  of $179,466  attributable  to the legal  fee 
discount  to various  Funds  (including  Funds  X,  XI,  XII, XII-A,  and XIII).  In the process of paying 

 
 8 
these amounts to the Funds,  First  Reserve provided  written notice to the Funds’ investors of the 
nature of the payments as well  as its planned  practice going  forward.  First Reserve plans to pass 
on any future discounts it  receives from the Law Firm  to any active Funds pro rata based on 
committed  capital during  the period  of any discount. 
 
Compliance  Policies and Proce dure s 
 
30. As a registered investment  adviser,  First Reserve is subject to Advisers Act rules, 
including  the requirement to adopt  and implement written  policies  and procedures that are 
reasonably designed  to prevent violations  of the Advisers Act and its rules, and that are, per the 
rule’s adopting release, tailored  to the risks  arising  from its  advisory  business. 
 
31. The nature of First Reserve’s business as a private equity fund adviser involves the 
allocation  of expenses as between itself  and its fund  clients.  Despite the potential  risks of 
allocating  such expenses inconsistently  with disclosures  to fund clients, First  Reserve did not adopt 
and implement  any written  policies  and procedures reasonably designed  to prevent the above 
violations  of the Advisers Act or its rules. 
 
32. The nature of First Reserve’s business as a private equity fund adviser involves the 
use of certain common  service providers  by  both it and its  fund clients.   Despite the potential  risks 
surrounding  the acceptance and disclosure  of disparate service provider  discounts, First Reserve 
did  not  adopt and implement  any written policies and procedures reasonably  designed  to prevent 
violations  of the Advisers Act or its rules. 
 
VIOLATIONS 
 
33. Section  206(2)  of the Advisers Act prohibits  investment  advisers from directly  or 
indirectly engaging “in any transaction, practice, or course of business which operates as a fraud or 
deceit upon any client or prospective client.”  A violation  of Section 206(2)  of the Advisers Act 
may rest on a finding  of simple  negligence.   SEC v. Steadman, 967 F.2d 636,  643  n.5 (D.C. Cir. 
1992)  (citing SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180,  195  (1963)).  Proof of 
scienter is  not required  to establish a violation  of Section 206(2)  of the Advisers Act.  Id.  As a 
result of the conduct described above, Respondent violated  Section  206(2)  of the Advisers Act. 
 
34. Section  206(4)  of the Advisers Act and Rule 206(4)-8  thereunder make it  unlawful 
for any investment adviser to a pooled investment vehicle to “[m]ake any untrue statement of a 
material  fact or, omit  to  state a material fact necessary to make the statements made, in  the light  of 
the circumstances under which they were made, not misleading to any investor  or prospective 
investor in the pooled investment vehicle” or “engage in any act, practice, or course of business 
that is fraudulent,  deceptive, or manipulative  with respect to any investor  or prospective  investor  in 
the pooled investment vehicle.”  Proof of scienter is not  required to establish  a violation  of Section 
206(4)  of the Advisers Act; a showing  of negligence  is  sufficient.  Steadman, 967 F.2d at 647.   As 
a result of the conduct described above, Respondent  violated  Section 206(4)  of the Advisers Act 
and Rule 206(4)-8  thereunder. 
 

 
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35. Section  206(4)  of the Advisers Act and Rule 206(4)-7  thereunder require registered 
investment  advisers to adopt and implement  written policies  and procedures reasonably  designed 
to prevent violations  of the Advisers Act and its rules.  Proof of scienter is not  required to establish 
a violation  of Section  206(4) of the Advisers Act.  Steadman, 967 F.2d at 647.  As a result of 
Respondent’s failure to adopt and implement written policies and procedures reasonably designed 
to prevent violations  of the Advisers Act or its  rules arising  from the conduct  described above, 
Respondent violated  Section  206(4)  of the Advisers Act and Rule 206(4)-7  thereunder. 
 
REMEDIAL EFFORTS AND COOPERATION 
 
36. In determining  to accept the Offer, the Commission  considered  the remedial efforts 
undertaken by the Respondent as described herein and the cooperation the Respondent provided to 
the Commission  staff during  its  investigation  and the preceding  examination,  including,  prior  to 
any contact by Commission  investigative  staff, voluntarily  committing  in the Respondent’s 
response to the OCIE examination  findings letter to reimburse and/or pay the amounts described 
herein to the Funds,  promptly  making  such reimbursements  or payments to the Funds,  and revising 
its practices and disclosures  as described herein. 
 
IV. 
 
 In view of the foregoing,  the Commission  deems it  appropriate to impose  the sanctions 
agreed to in Respondent’s Offer. 
 
 Accordingly,  it  is hereby ORDERED that: 
 
 A. Pursuant to Section 203(k) of the Advisers Act, Respondent shall cease and desist 
from committing  or causing any violations  and any future violations of Sections 206(2)  and 206(4) 
of the Advisers Act and Rules 206(4)-7 and 206(4)-8 thereunder. 
 
 B. Respondent shall,  within ten (10) business days of the entry of this  Order, pay a 
civil money penalty  in  the amount  of $3,500,000 to the Commission for transfer to the general 
fund  of the United  States Treasury, subject to Section  21F(g)(3) of the Securities  Exchange Act of 
1934.  If timely payment is  not made, additional  interest shall  accrue pursuant to 31  U.S.C. §3717.  
Payment must  be made in  one of the following  ways: 
 
(1) Respondent may transmit  payment electronically  to the Commission,  which 
will  provide  detailed  ACH transfer/Fedwire instructions  upon  request;  
 
(2) Respondent may make direct payment from  a bank account via  Pay.gov 
through  the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
 
(3) Respondent may pay by certified check, bank cashier’s check, or United 
States postal money  order,  made payable  to the Securities  and Exchange 
Commission  and hand-delivered  or mailed  to:  
 

 
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Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg.,  Room 181,  AMZ-341 
6500  South  MacArthur Boulevard 
Oklahoma  City,  OK 73169 
 
Payments by check or money  order must be accompanied  by a cover letter identifying 
Respondent as a Respondent in  these proceedings,  and the file  number  of these proceedings; a 
copy of the cover letter and check or money  order must be sent to Robert B. Baker, Assistant 
Regional Director, Asset Management Unit, Division  of Enforcement, Securities and Exchange 
Commission, Boston Regional  Office, 33 Arch Street, 24th Floor,  Boston,  MA  02110. 
 
 C. Amounts  ordered to be paid  as civil  money  penalties  pursuant to this  Order shall  be 
treated as penalties paid  to the government  for all  purposes, including  all  tax purposes.  To 
preserve the deterrent effect of the civil  penalty,  Respondent  agrees that in any Related Investor 
Action, Respondent shall  not argue that Respondent is  entitled  to,  nor shall Respondent benefit by, 
offset or reduction  of any award of compensatory  damages by the amount  of any part of 
Respondent’s payment of a civil penalty in this action (“Penalty Offset”).  If the court in  any 
Related Investor Action  grants such a Penalty Offset, Respondent agrees that Respondent shall, 
within  30  days after entry of a final  order granting  the Penalty Offset, notify  the Commission's 
counsel  in  this action  and pay the amount  of the Penalty Offset to the Securities  and Exchange 
Commission.   Such  a payment shall  not  be deemed an additional  civil  penalty  and shall  not be 
deemed to change the amount  of the civil  penalty  imposed  in  this  proceeding.  For purposes of this 
paragraph, a “Related Investor Action” means a private damages action  brought  against 
Respondent by  or on  behalf of one or more investors based on substantially  the same facts as 
alleged  in  the Order instituted  by the Commission  in  this  proceeding. 
 
D.   Respondent acknowledges that the Commission  is not  imposing  a civil  penalty  in 
excess of $3,500,000 based upon Respondent’s cooperation in  a Commission  investigation.   If at 
any time following  the entry of the Order, the Division of Enforcement (“Division”)  obtains 
information  indicating  that Respondent knowingly  provided  materially  false or misleading 
information  or materials to the Commission,  or in  a related proceeding,  the Division  may,  at its 
sole discretion  and with  prior  notice to the Respondent,  petition  the Commission  to reopen this 
matter and seek an order directing  that the Respondent pay an additional  civil  penalty.  Respondent 
may contest by  way of defense in any resulting  administrative  proceeding  whether it  knowingly 
provided  materially  false or misleading  information,  but  may not:   (1) contest the findings  in  the 
Order; or (2) assert any defense to liability  or remedy,  including,  but  not limited  to, any statute of 
limitations  defense. 
 
 By the Commission. 
 
 
 
       Brent J. Fields 
       Secretary 
 

1 

UNITED STATES OF AMERICA 

Before the 

SECURITIES AND EXCHANGE COMMISSION 

INVESTMENT ADVISERS ACT OF 1940 

Release No. 4529 / September 14, 2016 

ADMINISTRATIVE PROCEEDING 

File No. 3-17538 

In the Matter of 

FIRST RESERVE 

MANAGEMENT, L.P., 

Respondent. 

ORDER INSTITUTING CEASE-AND-

DESIST PROCEEDINGS PURSUANT TO 

SECTION 203(k) OF THE INVESTMENT 

ADVISERS ACT OF 1940, MAKING 

FINDINGS, AND IMPOSING A CEASE-

AND-DESIST ORDER 

I. 

The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
and-desist proceedings be, and hereby are, instituted pursuant to Section 203(k) of the Investment 

Advisers Act of 1940 (“Advisers Act”), against First Reserve Management, L.P. (“First Reserve” 
or “Respondent”). 

II. 

In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
of Settlement (the “Offer”), which the Commission has determined to accept.  Solely for the 
purpose of these proceedings and any other proceedings brought by or on behalf of the 

Commission, or to which the Commission is a party, and without admitting or denying the findings 
herein, except as to the Commission’s jurisdiction over Respondent and the subject matter of these 
proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
and-Desist Proceedings Pursuant to Section 203(k) of the Investment Advisers Act of 1940, 

Making Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below.  



 

 2 

III. 
 
 On the basis of this Order and Respondent’s Offer, the Commission finds

1
 that: 

 

SUMMARY 
 

1. This matter concerns certain financial conflicts of interest on the part of private 

equity fund advisory firm First Reserve that were not adequately disclosed to its private equity 
fund clients (the “Funds”) or to investors in the Funds. 
 

2. At various times between approximately 2010 and 2015, First Reserve allocated the 

following expenses to the Funds without making appropriate disclosures or receiving effective 
consent: 

 
(i) certain fees and expenses of two entities formed as advisers to a Fund 

portfolio company that was a pooled investment vehicle, enabling First 
Reserve to avoid incurring certain expenses in connection with providing 
advisory services to the Funds; and 

 

(ii) certain premiums for a liability insurance policy covering First Reserve for 
risks not entirely arising from its management of the Funds, where the 
Funds’ governing documents provided that the Funds only would pay 
insurance expenses relating to the affairs of the Funds. 

 
3. In addition, First Reserve negotiated a legal fee discount from a law firm for itself 

for certain services based on the large volume of work the law firm performed for the Funds, while 
the Funds did not receive a discount on the same services.  Because of the conflict of interest First 

Reserve faced as the beneficiary of the discount, First Reserve could not consent on behalf of the 
Funds to First Reserve’s practice of accepting the discount. 
 

4. Based on the foregoing conduct, First Reserve violated Sections 206(2) and 206(4) 

of the Advisers Act and Rule 206(4)-8 thereunder. 
 
5. First Reserve also violated Section 206(4) of the Advisers Act and Rule 206(4)-7 

thereunder by failing to adopt and implement written policies and procedures reasonably designed 

to prevent the above violations of the Advisers Act. 
 

                                              
1
  The findings herein are made pursuant to Respondent’s Offer and are not binding on any 

other person or entity in this or any other proceeding. 



 

 3 

RESPONDENT AND OTHER RELEVANT ENTITIES 
 

Respondent 
 

6. First Reserve Management, L.P. (“First Reserve” or “Respondent”) is a Cayman 
Islands limited partnership with a principal place of business in Greenwich, Connecticut.  First 
Reserve has been registered with the Commission as an investment adviser since March 2012.  

Founded in 1983, First Reserve advises approximately twenty private fund clients.  As of 
December 31, 2015, it reported assets under management of over $12 billion. 
 

Other Relevant Entities 
 

7. First Reserve Fund X, L.P., First Reserve Fund XI, L.P., First Reserve Fund 

XII, L.P., First Reserve Fund XII-A Parallel Vehicle, L.P., and First Reserve Fund XIII, L.P. 
(respectively, “Fund X,” “Fund XI,” “Fund XII,” “Fund XII-A,” and “Fund XIII,” and collectively, 

and together with other private funds managed by First Reserve, the “First Reserve Funds” or 
“Funds”) are among private funds managed by First Reserve that are the subject of this proceeding. 

 
8. First Reserve Momentum L.P. (“FRM”) is a private fund that is a portfolio 

company of Fund XII and Fund XII-A. 

 
9. First Reserve Momentum (US), LLC (“FRM US”) is a Delaware limited liability 

company with a principal place of business in Houston, Texas.  FRM US has been registered with 

the Commission as an investment adviser since October 2014.  During the relevant period, FRM 
US reported approximately $200 million in assets under management in one discretionary account 
(i.e., FRM). 

 

10. First Reserve Momentum LLP (“FRM UK”) is a foreign adviser not registered 
with the Commission and is the parent company of FRM US.  Both FRM US and FRM UK are 
subsidiaries of FRM and provide advisory services solely to FRM. 

 

FACTS 
 

Background 
 

11. First Reserve provides investment advisory services to the Funds, which make 
investments primarily in companies in the energy and natural resources industries.  First Reserve 
markets itself as the largest and longest-running private equity firm to focus exclusively on energy-
related investments and touts its specialized knowledge of the energy industry as a competitive 

advantage.  First Reserve further promotes its management team’s vast experience in energy 
investing, as well as the firm’s history of diversifying investments across different segments of the 
energy industry, as factors contributing to its ability to predict market trends, thereby leading to its 
success in selecting investments.  First Reserve also claims, in certain marketing and fundraising 

materials, that its extensive knowledge of the energy industry and familiarity with industry players 
allows it to access promising deal avenues and to recruit top managers for portfolio companies. 

 



 

 4 

12. The Funds are each organized as limited partnerships.  A First Reserve affiliate 
serves as the general partner of each of the Funds and has authority to make all decisions for, and 
act on behalf of, the Funds.  A First Reserve affiliate also serves as the investment adviser to each 

of the Funds.  The terms of each Fund’s operations, including provisions concerning expenses, are 
set forth in each Fund’s governing documents, including a limited partnership agreement (“LPA”).  
The terms of the investment advisory services that First Reserve or its affiliate provides to each of 
the Funds, and the management fee that First Reserve or its affiliate receives from each of the 

Funds for such services, are set forth in the LPA for each of the Funds as well as in an investment 
advisory agreement (“IAA”) that First Reserve or its affiliate enters into with each of the Funds. 

 
13. Beginning in late 2014, staff of the Commission’s Office of Compliance 

Inspections and Examinations (“OCIE”) conducted an examination of First Reserve and, in 2015, 
raised concerns about certain expenses that First Reserve’s general partner affiliate had allocated to 
the Funds.  During and after the examination, First Reserve voluntarily reimbursed certain 
expenses and made other payments to the Funds, as described herein. 

 

Fees and Expenses of Two Entities Formed as Advisers to a Portfolio Company 
 

14. In late 2013, First Reserve’s general partner affiliate caused Funds XII and XII-A to 

make an investment in FRM, which itself is a pooled investment vehicle.  Funds XII and XII-A 
provided seed capital to FRM for the purpose of funding investments by FRM.  In particular, First 
Reserve formed FRM for the purpose of seeking out and making investments on behalf of Funds 
XII and XII-A in small oil field equipment and services companies in the energy industry, and 

FRM made investments in two such energy companies in 2014.  Investments in pooled investment 
vehicles such as FRM are not expressly prohibited by the LPAs for Funds XII and XII-A.  
However, the LPAs for Funds XII and XII-A state that Funds XII and XII-A will make 
investments “solely in companies involved in the energy and natural resources industries.”  With 

the exception of FRM, Funds XII and XII-A invested directly in companies involved in the energy 
and natural resources industries and did not invest in any other pooled investment vehicles. 

 
15. Funds XII and XII-A collectively own approximately 75% of FRM, while a group 

of current and former executives of a multinational oil field services company owns approximately 
25% of FRM.  FRM’s owners (including Funds XII and XII-A, and consequently First Reserve’s 
general partner affiliate) retain investment discretion over the assets of FRM. 

 

16. First Reserve and the multinational oil field executive group formed and organized 
FRM UK and FRM US as subsidiaries of FRM to provide investment management services to 
FRM.  FRM UK and FRM US were formed solely for the purpose of employing the management 
team that provides investment management services to FRM.  FRM UK and FRM US provide 

services only to FRM and do not have any other business (for example, FRM is FRM US’s only 
advisory client).  FRM’s management team is composed of different individuals than First 
Reserve’s management team, but certain First Reserve employees serve on the board of FRM’s 
general partner and as members of the Investment Advisory Committee of FRM UK, and, by 

virtue of Fund XII and XII-A’s indirect ownership of FRM UK and FRM US, First Reserve 
essentially exerted control over the members and employees of FRM UK and FRM US.  The 



 

 5 

following is a simplified illustration of the FRM ownership and management structure described 
above. 
 

 
 

17. First Reserve caused Funds XII and XII-A to enter into a limited partnership 

agreement as to FRM with the other partners of FRM, which permitted FRM UK to call capital 
from Funds XII and XII-A for their approximately 75% pro rata share of FRM UK’s 
organizational and start-up expenses.  First Reserve also caused FRM’s general partner and FRM 
UK to enter into an advisory agreement, pursuant to which FRM UK would be paid, at a minimum, 

an annual fee of 2% of committed capital amounts, plus any additional fees to which the parties 
later agreed.  There was no cap on the total payment of fees to FRM UK (which could then be 
passed on to FRM US). 

 

18. Beginning in late 2013, a proportionate share of the Fund XII and XII-A combined 
investment in FRM was used to pay the formation and various operation expenses of FRM UK and 
FRM US.  Through mid-2015, more than $7 million of the Funds’ approximately $40 million 
combined capital contribution to FRM, or more than 15% of the Funds’ investment in FRM 

through that time, paid for the Funds’ proportionate share of expenses related to FRM UK and 
FRM US.  Because Funds XII and XII-A are only entitled to receive their proportionate share of 
any proceeds that FRM may generate upon the realization of its investments, Funds XII and XII-A 
may not achieve a return on the amounts they paid in respect of expenses of FRM UK and FRM 

US.  The amounts Funds XII and XII-A paid in respect of expenses of FRM UK and FRM US 
were used for, among other things, general office operating costs, such as rent, utilities, and 
salaries, as well as costs related to the formation of FRM UK and FRM US as investment advisory 
entities, including regulatory registration costs. 

 



 

 6 

19. First Reserve’s decision to make the investment in FRM, and to structure the 
investment such that FRM (and ultimately Funds XII and XII-A) paid the expenses of FRM UK 
and FRM US, enabled First Reserve to avoid incurring certain administrative expenses and certain 

expenses in connection with providing investment advisory services to the Funds.  First Reserve 
did not disclose to Funds XII and XII-A or their advisory boards, or to investors in Funds XII and 
XII-A, neither prior to the commitment of capital nor prior to the expenses being incurred, that 
capital contributed to FRM by Funds XII and XII-A would be used to pay the significant costs and 

fees of establishing and operating FRM UK and FRM US as investment advisory entities to FRM.  
Because of the relationships between and among First Reserve, FRM, FRM UK, and FRM US, the 
capital contributed to FRM by Funds XII and XII-A that was used to pay fees to FRM UK and 
FRM US gave rise to a financial conflict of interest that First Reserve did not disclose. 

 
20. The LPAs for Funds XII and XII-A further provide a mechanism by which First 

Reserve can present potential conflicts of interest for review and approval to an Advisory Board 
comprised of investors in the Funds.  The LPAs also provide that, if First Reserve consults with the 

Advisory Board concerning a potential conflict of interest and discloses all relevant facts to the 
Advisory Board, and the Advisory Board waives or approves a course of action as to any conflict, 
then First Reserve can proceed to take actions without exposing itself to any potential liability to 
Funds.  Here, however, First Reserve did not consult the Advisory Board concerning any potential 

conflict of interest arising from the use of any portion of the capital contributed to FRM by Funds 
XII and XII-A for the formation and operation costs of FRM UK and FRM US. 
 

21. In June 2015, following the OCIE staff examination, First Reserve voluntarily 

reimbursed a total of $7,435,737 to Funds XII and XII-A, representing the proportionate share of 
Fund XII and XII-A’s combined investment in FRM that paid the expenses of FRM UK and FRM 
US.  In the process of reimbursing Funds XII and XII-A, First Reserve provided written notice to 
the investors in Funds XII and XII-A of the nature of the reimbursement as well as its planned 

practice as to these expenses going forward.  First Reserve has voluntarily undertaken to revise its 
expense allocation practices concerning FRM such that, going forward, First Reserve or its general 
partner affiliates will bear the costs of FRM UK and FRM US attributable to Fund XII and XII-A’s 
proportionate share of their combined ownership interest in FRM. 

 

Insurance Premiums  
 
22. The Funds’ LPAs provide that the Funds will bear the out-of-pockets costs of any 

insurance “relating to the affairs of” the Funds. 
 
23. Beginning in at least 2008, First Reserve caused the Funds to pay 100% of the 

premiums for a liability insurance policy covering First Reserve for various risks, some but not all 

of which arise out of First Reserve’s management of the Funds. 
 
24. In 2013, First Reserve retained a third party to conduct a periodic compliance 

review, which resulted in a recommendation for First Reserve to reconsider its insurance premium 

allocation practices. 
 



 

 7 

25. As a result of the review, First Reserve revised its practice such that First Reserve 
prospectively will bear the portion of the insurance premiums attributable to risks that do not 
directly arise from its management of the funds.  By previously allocating all insurance premiums 

to the Funds and no portion to itself, First Reserve acted in contravention of the Funds’ governing 
documents. 

 
26. First Reserve also retroactively reimbursed the applicable Funds for First Reserve’s 

share of insurance premiums for prior coverage periods.  First Reserve reimbursed a total of 
$733,012 to various Funds (including Funds X, XI, XII, XII-A, and XIII), representing its share of 
past premiums.  In the process of reimbursing these amounts to the Funds, First Reserve provided 
written notice to the applicable Funds’ investors of the nature of the reimbursements as well as its 

revised practice. 
 

Legal Fee Discount 
 

27. Between at least 2010 and 2014, an outside law firm (the “Law Firm”) provided 
legal services to each of First Reserve and various Funds.  First Reserve arranged for and 
coordinated all legal services that the Law Firm performed for both First Reserve and the Funds.  
During and before the relevant period, the Law Firm performed a substantially greater volume of 

services for the Funds than for First Reserve and consequently generated significantly more legal 
fees in connection with services it provided to the Funds.  The disparity in the quantity of the Law 
Firm’s services and fees for Fund-related work versus adviser-related work was known to First 
Reserve, and indeed is common and expected based on the differing nature of the legal services 

each type of entity typically needs in connection with its particular business and operations.  Based 
on the high volume of Fund-related work, First Reserve asked whether it could receive any 
discount from the Law Firm.  As a result, the Law Firm offered and First Reserve accepted a 
discount on the Law Firm’s fees for certain services for First Reserve, but the Funds did not 

receive any discount for the same services (although the Funds received certain discounts on other 
types of services).  First Reserve accepted the benefit of the recurring disparate discount from the 
Law Firm for itself and did not negotiate or attempt to negotiate a similar, or any, discount for the 
Funds for the same services (although the Funds received certain discounts for other services). 

 
28. Beginning in early 2013, after capital was already committed to the Funds, First 

Reserve disclosed in its Form ADV the possibility that it could receive service provider discounts 
that might be more favorable than those received by the Funds.  However, First Reserve did not 

disclose to the Funds or investors in the Funds at any time that First Reserve in fact received a 
discount on certain services from the Law Firm while the Funds did not receive a discount on the 
same services.  Because of its conflict of interest as the beneficiary of the discount, First Reserve 
could not effectively consent on behalf of the Funds to First Reserve’s acceptance of the discount 

while First Reserve knew the Funds did not also receive the same discount. 
 
29. In November and December 2014, following the OCIE staff examination, First 

Reserve voluntarily paid to the applicable Funds their pro rata share (based on committed capital 

during each calendar year) of the amount of the discount that First Reserve received from the Law 
Firm during the relevant period.  First Reserve paid a total of $179,466 attributable to the legal fee 
discount to various Funds (including Funds X, XI, XII, XII-A, and XIII).  In the process of paying 



 

 8 

these amounts to the Funds, First Reserve provided written notice to the Funds’ investors of the 
nature of the payments as well as its planned practice going forward.  First Reserve plans to pass 
on any future discounts it receives from the Law Firm to any active Funds pro rata based on 

committed capital during the period of any discount. 
 

Compliance Policies and Procedures 
 

30. As a registered investment adviser, First Reserve is subject to Advisers Act rules, 
including the requirement to adopt and implement written policies and procedures that are 
reasonably designed to prevent violations of the Advisers Act and its rules, and that are, per the 
rule’s adopting release, tailored to the risks arising from its advisory business. 

 
31. The nature of First Reserve’s business as a private equity fund adviser involves the 

allocation of expenses as between itself and its fund clients.  Despite the potential risks of 
allocating such expenses inconsistently with disclosures to fund clients, First Reserve did not adopt 

and implement any written policies and procedures reasonably designed to prevent the above 
violations of the Advisers Act or its rules. 

 
32. The nature of First Reserve’s business as a private equity fund adviser involves the 

use of certain common service providers by both it and its fund clients.  Despite the potential risks 
surrounding the acceptance and disclosure of disparate service provider discounts, First Reserve 
did not adopt and implement any written policies and procedures reasonably designed to prevent 
violations of the Advisers Act or its rules. 

 

VIOLATIONS 
 

33. Section 206(2) of the Advisers Act prohibits investment advisers from directly or 

indirectly engaging “in any transaction, practice, or course of business which operates as a fraud or 
deceit upon any client or prospective client.”  A violation of Section 206(2) of the Advisers Act 
may rest on a finding of simple negligence.  SEC v. Steadman, 967 F.2d 636, 643 n.5 (D.C. Cir. 
1992) (citing SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 195 (1963)).  Proof of 

scienter is not required to establish a violation of Section 206(2) of the Advisers Act.  Id.  As a 
result of the conduct described above, Respondent violated Section 206(2) of the Advisers Act. 

 
34. Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder make it unlawful 

for any investment adviser to a pooled investment vehicle to “[m]ake any untrue statement of a 
material fact or, omit to state a material fact necessary to make the statements made, in the light of 
the circumstances under which they were made, not misleading to any investor or prospective 
investor in the pooled investment vehicle” or “engage in any act, practice, or course of business 

that is fraudulent, deceptive, or manipulative with respect to any investor or prospective investor in 
the pooled investment vehicle.”  Proof of scienter is not required to establish a violation of Section 
206(4) of the Advisers Act; a showing of negligence is sufficient.  Steadman, 967 F.2d at 647.  As 
a result of the conduct described above, Respondent violated Section 206(4) of the Advisers Act 

and Rule 206(4)-8 thereunder. 
 



 

 9 

35. Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder require registered 
investment advisers to adopt and implement written policies and procedures reasonably designed 
to prevent violations of the Advisers Act and its rules.  Proof of scienter is not required to establish 

a violation of Section 206(4) of the Advisers Act.  Steadman, 967 F.2d at 647.  As a result of 
Respondent’s failure to adopt and implement written policies and procedures reasonably designed 
to prevent violations of the Advisers Act or its rules arising from the conduct described above, 
Respondent violated Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder. 

 

REMEDIAL EFFORTS AND COOPERATION 
 
36. In determining to accept the Offer, the Commission considered the remedial efforts 

undertaken by the Respondent as described herein and the cooperation the Respondent provided to 
the Commission staff during its investigation and the preceding examination, including, prior to 
any contact by Commission investigative staff, voluntarily committing in the Respondent’s 
response to the OCIE examination findings letter to reimburse and/or pay the amounts described 

herein to the Funds, promptly making such reimbursements or payments to the Funds, and revising 
its practices and disclosures as described herein. 
 

IV. 

 
 In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
agreed to in Respondent’s Offer. 
 

 Accordingly, it is hereby ORDERED that: 
 
 A. Pursuant to Section 203(k) of the Advisers Act, Respondent shall cease and desist 
from committing or causing any violations and any future violations of Sections 206(2) and 206(4) 

of the Advisers Act and Rules 206(4)-7 and 206(4)-8 thereunder. 
 
 B. Respondent shall, within ten (10) business days of the entry of this Order, pay a 
civil money penalty in the amount of $3,500,000 to the Commission for transfer to the general 

fund of the United States Treasury, subject to Section 21F(g)(3) of the Securities Exchange Act of 
1934.  If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. §3717.  
Payment must be made in one of the following ways: 
 

(1) Respondent may transmit payment electronically to the Commission, which 
will provide detailed ACH transfer/Fedwire instructions upon request;  

 
(2) Respondent may make direct payment from a bank account via Pay.gov 

through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
 
(3) Respondent may pay by certified check, bank cashier’s check, or United 

States postal money order, made payable to the Securities and Exchange 

Commission and hand-delivered or mailed to:  
 

http://www.sec.gov/about/offices/ofm.htm


 

 10 

Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 

6500 South MacArthur Boulevard 
Oklahoma City, OK 73169 

 
Payments by check or money order must be accompanied by a cover letter identifying 

Respondent as a Respondent in these proceedings, and the file number of these proceedings; a 
copy of the cover letter and check or money order must be sent to Robert B. Baker, Assistant 
Regional Director, Asset Management Unit, Division of Enforcement, Securities and Exchange 
Commission, Boston Regional Office, 33 Arch Street, 24th Floor, Boston, MA  02110. 

 
 C. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be 
treated as penalties paid to the government for all purposes, including all tax purposes.  To 
preserve the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor 

Action, Respondent shall not argue that Respondent is entitled to, nor shall Respondent benefit by, 
offset or reduction of any award of compensatory damages by the amount of any part of 
Respondent’s payment of a civil penalty in this action (“Penalty Offset”).  If the court in any 
Related Investor Action grants such a Penalty Offset, Respondent agrees that Respondent shall, 

within 30 days after entry of a final order granting the Penalty Offset, notify the Commission's 
counsel in this action and pay the amount of the Penalty Offset to the Securities and Exchange 
Commission.  Such a payment shall not be deemed an additional civil penalty and shall not be 
deemed to change the amount of the civil penalty imposed in this proceeding.  For purposes of this 

paragraph, a “Related Investor Action” means a private damages action brought against 
Respondent by or on behalf of one or more investors based on substantially the same facts as 
alleged in the Order instituted by the Commission in this proceeding. 
 

D.   Respondent acknowledges that the Commission is not imposing a civil penalty in 
excess of $3,500,000 based upon Respondent’s cooperation in a Commission investigation.  If at 
any time following the entry of the Order, the Division of Enforcement (“Division”) obtains 
information indicating that Respondent knowingly provided materially false or misleading 

information or materials to the Commission, or in a related proceeding, the Division may, at its 
sole discretion and with prior notice to the Respondent, petition the Commission to reopen this 
matter and seek an order directing that the Respondent pay an additional civil penalty.  Respondent 
may contest by way of defense in any resulting administrative proceeding whether it knowingly 

provided materially false or misleading information, but may not:  (1) contest the findings in the 
Order; or (2) assert any defense to liability or remedy, including, but not limited to, any statute of 
limitations defense. 
 

 By the Commission. 
 
 
 

       Brent J. Fields 
       Secretary