Perceptive Advisors has agreed to settle Securities and Exchange Commission charges that it committed several violations related to its special purpose acquisition companies.
The regulator accused the firm of failing to disclose conflicts of interest related to three of Perceptive’s SPACs, whose sponsors were owned both by Perceptive personnel and by Perceptive’s hedge fund.
Under the arrangement, Perceptive personnel were entitled to a portion of the compensation that the SPAC sponsors received when it completed a merger. “Perceptive repeatedly invested assets of a private fund it advised in certain transactions that helped complete the SPACs’ business combinations and did not timely disclose these conflicts,” the SEC stated in its complaint.
The SEC also accused Perceptive of failing to file in a timely manner a required 13D document concerning its beneficial ownership of stock in a public company. “During the lapse in filing,” Perceptive’s hedge fund “improperly acquired beneficial ownership of additional stock in the public company,” the SEC added.
“Perceptive did not provide its private fund clients and investors with adequate information about the conflicted SPAC investments,” said C. Dabney O’Riordan, chief of the SEC’s Enforcement Division’s Asset Management Unit, in a press release.
“Perceptive is pleased to have resolved this matter, in which it fully cooperated with the SEC,” the firm said in a statement e-mailed to Institutional Investor. “It should be noted that these disclosure gaps were identified internally. Perceptive had remedied or was in the process of remedying all SPAC disclosure and compliance gaps ultimately identified by the SEC prior to receiving the SEC’s initial inquiry.”
Perceptive also said that it has already taken “significant, proactive steps to enhance” its controls and policies. “As an organization, we take our responsibilities to our investors seriously and are committed to transparency and the highest standards of governance,” it added.
Perceptive, founded by Joseph Edelman in 1999, specializes in investing in public and private companies developing biotechnology products, drugs, medical devices, and diagnostics. According to the firm’s website, Perceptive manages $9.5 billion across three strategies: its well-known hedge funds, along with credit opportunities and private/venture capital.
This year its main hedge fund — the Perceptive Life Sciences Master Fund — was down about 33 percent through July. In 2021, it suffered the worst loss in its 23-year history, dropping nearly 28 percent for the year.
Perceptive was one of the most active hedge fund firms in the short-lived SPAC boom, raising money for five SPACs under the name ARYA Sciences Acquisitions Corp. The most recent of these — ARYA Sciences Acquisitions Corp. V — raised $130 million in July 2021 just as the blank-check market was starting to blow up.
In June 2021, ARYA Sciences Acquisition III completed its merger with Nautilus Biotechnology, a development-stage life sciences company.
In February of this year, Perceptive terminated the previously announced merger between ARYA Sciences Acquisition Corp IV and Amicus Therapeutics, citing market conditions.
According to the SEC’s complaint, the hedge fund was the sole owner of the first SPAC. However, ownership of ARYA II, ARYA III, and ARYA IV was shared by five Perceptive “supervised persons” and PLSM. Under the arrangement, Perceptive personnel were entitled to receive a portion of the SPAC sponsor compensation.
For example, compensation was contingent upon the SPAC’s completion of a business combination. This meant that Perceptive personnel had financial incentives to recommend that ARYA II, ARYA III, and ARYA IV engage in a deal, “even if the transactions or their terms were not necessarily in the best interests of one or more of their advisory clients,” according to the SEC’s complaint.
According to the order, Perceptive now has 10 days to pay a $1.5 million civil penalty.
