SEC v. Madison Capital Funding LLC - Investment Adviser Sanctions

UNITED S TATES OF AME R ICA Before th e SECURIT IES AND E XCHA NGE C OMMIS S ION INVEST MENT ADV ISERS ACT OF 1 940 Rele as e No. 6 948 / F ebru ar y 2 5, 2 0 26 ADMINIS TRAT IVE PRO CEEDIN G File N o. 3- 22 5 99 In th e M att er of MADIS ON CAPIT AL FUNDING LL C, Re s po nde nt. ORDER INST ITUTIN G ADMINIS TRAT IVE AND CEASE - AND - DESIS T PROCEEDI NGS, PURS UANT T O SECTIONS 203(e) A ND 203(k) O F THE INVEST MENT ADV ISERS ACT OF 1 940, MAKING FI NDINGS, AND IMP OSI NG REMEDIAL SANCT IONS AND A CEAS E - AND - DESIS T ORDER I. The S e cur i ti es an d E x c hang e Co mmis si o n (“Co mmis si o n”) d eem s i t a ppr opr i at e a nd i n t he pub lic i ntere st th at pu blic adm i nis trati ve and cease - and - desi st pr ocee d i ngs b e, and h ere by ar e, ins t it ut e d pur s ua nt t o S ect i o ns 20 3(e) a nd 20 3(k) of t h e I nv est m ent Ad vis e rs Act of 1 940 (“A d vi s ers Act ”) a gai nst Ma dis on C a pit al F u ndi n g LLC (“R es po nde nt” or “ Madi s on C api t al ”). II. In a nti ci pat i o n of t h e inst it uti on of t hes e pr o ce edi ngs, Re sp o ndent ha s su bmit t ed an Of fe r of S ett l eme nt (t he “Off er ”) whi ch t h e Com mi ssi o n has det er mi ne d t o ac ce pt. S olel y f or t he pur p os e of t h es e pr oc ee di ngs a nd an y ot h er p ro ce edi ng s b ro ught by or o n be hal f of t he Commi ssi on, or to whi c h t he C ommi ss i on is a p ar t y, a nd wi t h out ad mi t ti ng or d e nyi ng t he f in din gs h er ein, ex ce pt a s to t he C o mmis si o n’s j uri s di cti o n o v er i t a nd t he su bje ct m att er of t hes e pr o ce edi ngs, w hic h a r e ad m it ted, Re s pon dent co nse nts t o the entry of this Orde r Instituting Adm i nis trative and Cease - And - De si st P ro ce e din gs, Pur su ant to S e cti o ns 203(e) a n d 2 03(k) of t he I nve st ment Advi s ers A ct o f 19 40, M a ki ng F i ndi ngs, a nd Im posi n g Re me dial S a ncti o ns a n d a C eas e - An d - Desist Ord er (“Or der ”), as set for t h bel ow. III.

2 On t h e b asi s of t hi s O rd er a nd R es po n de nt’s O ffe r, th e Com mis si o n fin ds t hat: Sum ma ry 1. Fro m Ma rch 2020 t o May 2020 (the “ Releva nt Pe riod”), Madi son C ap i tal, whic h at the ti me was an inv es t men t a dv iser reg i s te red w i th the Co mm iss io n, pr i ced p r in ci p a l tr a d e s w i th p ool e d i n ve st m e nt ve hi cl es (“ Funds ”) it a dv ised wi t ho ut re as on abl y det er mi ni n g w het h er tho s e tr a de s wer e at f air ma rket v al ue, co ntr ar y t o M ad is o n Ca p i ta l ’ s o b li ga t ion s under its adv isor y a gr ee men t s and re p r e s en ta t ion s to in v e s to rs. M ad is o n Ca p i ta l, u s ing fund s from i ts pa rent com pan y, ori gi n at e d ce rt a in s eni or l oa ns f o r pr i va t e e qui t y s pon s or s a cqui r i ng lo we r - mid d le ma rk et co m pa ni es a nd s ol d p o rt i on s of t h os e l oa n s t o t he F u nd s, t ypi c all y af t er hol di n g t he m f or thi rt y t o si x t y d ays. T h e Fu n ds ’ a d vis or y a gr ee me nt s a nd dis cl os ur es t o i n v es t or s s t at e d t h at M a di so n C a pit al w o u ld s e l l th e l oan s t o t he F u nd s at “ fai r val ue” or “ fa ir mar k et val u e ” aft er an ind epe nd en t re vi ew a gen t prov ided cons en t to the sales on beh al f of the F und s. Madi son Ca pit al’ s p rac tice wa s to us e th e p ar v al ue le ss t he un am o r tiz e d l oa n fe e a s t h e f air ma rket val u e a nd sa le pr i ce of th ese r e ce ntl y o r iginat ed loans. Ye t, be twe en Marc h 202 0 and May 20 20, at t he s t art of t he c or o na vir u s p a nde mic, du r ing a per iod of di s ru pt io n in U.S. fi nancial m arkets, M adiso n C apit al c onti nued to se l l p erfo rm ing loan s i t origina t ed be fo re the ma rke t di s rupt ion at pa r value l ess the unam or tiz ed loan fe e an d f ail ed to det er min e t h e e ff ect of t he ma rk et di sr u pti on o n t he f air ma rk e t v al ue of th ose lo an s. A s a re s ult, M adi s on Ca pi t al br eac h ed its f id uc i ar y dut y t o t h e F u nds a n d f ail ed to ac t in a cco rdan c e wit h t he di sc lo s ur es t o i n ve st or s. Re s po nde nt 2. M adi s on C a pi t al F un di n g LL C wa s i nc or por at ed in De la wa re i n 2 0 01 wit h a pri n ci pal pl a ce of bus in es s i n C hi ca g o, Il l i n oi s. D ur i n g t h e R el e v an t P er io d, Re sp o nd e nt w as a w h o l ly - o wne d subs id iary o f a large l if e insu rance com pan y. Mad i son Cap it al regi s tered w i t h th e Com mi ssi o n as a n i n v est me nt a dv is er i n 2 01 2 a nd m ai n ta i n ed t h at re gi str at i o n thr oug h t he R el ev a nt P eri od. As o f i ts For m A DV fil ed i n M ay 20 2 0, M a dis o n C a pi t al ha d ap pr o xi mat el y $3. 7 bil l i o n i n re gu la t or y a ss et s un de r ma nag em en t. Ma dis o n Ca pita l’s Loa n O r iginat io n B usi ness 3. M adi s on C api t al o ffe re d le ndi ng t o co mp ani es bei ng ac qui re d b y pri vat e equi t y firms, pr i m ar il y t o hel p th em pur c has e mi ddl e - ma rke t c om pa n ie s thr oug h le vera ge d bu yo u t s. The sp ons or s wo ul d pr o vid e e qui t y fi na nci n g and M adi s on C api tal w oul d pr o vi de seni or de bt fi na nci ng to f acilitate the buyout. 4. M adi s on C api t al w oul d s ell p ort i on s of t he l o ans i t ori gi n ate d t o pr i vat e f unds, inc l udi ng t he F und s. M adis o n Ca pit al se t up a n d o rg ani ze d t he F u n ds f or insti tution a l inv e s to rs, suc h a s b anks, i ns ura nce c o m p ani es, f amil y offi ce s, a nd ot her ass et m an ag ers, an d pr o vid ed ad vi s ory ser vi c es t o e ac h of th e F u nd s. As a ge ner al m att e r, M adi so n Ca pit al r etai ne d ap pr oxim ate ly 40 - 5 0% of t he under l yi ng l oa n, a n d t h e r e mai ni n g porti o ns of e ac h l o an w er e

3 all o cat ed t o th e Fu nds i n ac cor dan ce wit h Ma dis o n C ap it al ’s I n vest ment P ra ct i ces an d Al l ocat i o n Polic y. 5. As o u tl i n ed i n t he Fu n ds’ priv ate pl ac eme nt m emor a n da (“PP M s”), t h e lo ans M adi s on C api t al m ad e a nd s ol d t o th e Fu nds wer e s ubj ect t o cr e dit r is k, re f err ing t o t h e l i k el i ho od that t he bo rro wer w o uld def a ult, a nd i n ter est r ate ri sk ass o ciat ed wit h m ar ket cha nges in inte r es t rat es. 6. As p art o f it s l oan ori gin ati on pr oc ess, M a dis on C api t al de al t ea ms co ndu cte d du e dil ig en ce i nt o th e u nder l yi n g c om pa ni es a nd pr es ent ed t he f in di n gs t o i ts i nte r nal I nv est me nt Commi tt ee for ap pr o v al. T h e d eal t ea ms c ond u ct ed i nit i al d ue di li g e nc e o n a pro s pect i ve bor row er’ s o per at i ons a nd fi na nci al per f or ma nc e pri or t o pr opo sin g pot ent i al de als t o t h e Inv est me nt Co mmit t ee. If t he I n ves tme nt C ommi t t ee agr e ed t o mov e fo rwa rd wi t h a pr os pect iv e de al, t h e d eal t eam wo ul d t h en co ndu ct a ddit i on al du e di l i ge nc e on t he co mp a ny bef or e pr es enti n g an un der wr i ti ng mem or an du m f or f i nal a p pro va l b y th e I nves tm ent C omm it te e. I f M adi so n Capi t al’s I nvest me nt C o mmit t ee ap pr oved a d eal aft e r t h e fu rth er du e dili ge nc e by M adi son Capi t al’s de al t e am, Ma dis on C apit al cl os ed t he d e al a nd pr o vid ed t he se ni o r de bt f in a nci ng as part of th e pr i v at e eq uit y sp o ns or’s l ev era g ed bu y out of th e under l yi ng co mp any. 7. Afte r c lo sin g, Ma di so n C a pi ta l ty pic all y hel d t he l oa ns on it s b oo ks f or t hi rt y t o si xt y d ay s be fo re s ell i n g porti o ns of t h os e lo an s t o t he F un ds. T hi s w as d one f or s ev eral r ea so ns, inc l udi ng t o co mpl y wit h t a x re g ulat i on s f o r of f sh or e in ve st or s, or be ca us e th e F un ds di d not ha ve e no ug h liquid ity a t t he time t o pu rchase the loans. Mad ison C ap i tal ’ s In te rn al C redi t R atin g S yst em 8. M adi s on C api t al a ssi gn ed e a ch l oa n it un der wrot e an i n terna l cr edit rating ranging fr om “A” t o “F, ” whi c h he lpe d M a dis on Capita l monitor the ove rall po rtfolio ba se d on the perf or ma nce of t he u nder l yin g a ss et s. M adi so n C apita l woul d or i gi nat e o nly l oa ns t hat r ecei v ed a “B” c re dit rat i ng, me ani n g th at Mad iso n C apit al d ee med t h e u n derl yin g c om p an y a st a ble a nd perf or mi n g b usi ne ss. T o t he e xt e nt a busi nes s sig nif i ca nt ly o utp erf orm ed pr oj ecti on s or i t s d ebt de cl i n ed me ani ng ful l y, M a di so n C api t al c oul d up gr a d e th e cr edi t rat i ng of t hat loa n to “A ” or “B+.” C onv ers ely, if a b usi ne ss un der p er f orm ed i n on e of s e ver al di f fer ent wa ys, M a di so n C api t al woul d dow n gra de t he c r edit r ati ng t o a “C+ ” or l ow er, p urs ua nt t o it s L oa n Ra ti ng S yst e m. F or ex am ple, a l oa n coul d be dow n gr ad ed t o a “C+ ” if t her e we re pot ent i al di sr upt ion s t o t he i nd ust r y but t her e ha d b ee n no i s su es wi t h p ay me nt. A l oa n wo ul d b e d ow ng ra de d to a “C” f or a cov enant def au lt, a “D” i f t her e we re co nti n ui ng co ve nant viol ati ons or li qui dit y c on cer ns, an “ E” f or no t meet i n g p ayme nt o bli gat i on s, a nd an “F ” i f t he l oa n re q ui re d a wr i te - o ff. Mad ison C apita l vie we d loa ns r at e d “D” o r b el o w a s i mp aire d. M a dis on C apit al s old l oa ns t o th e Fu nds on l y if t he l oa ns were r ate d “B ” or a bov e at t he tim e of th e pr o po se d sal e. Madison C ap ital performed final c redit ch ec ks o n t he da y b ef ore a s ch ed ule d sal e by as kin g t h e cre dit t e am whet he r t her e we re any dow ngr a des or a nti ci pat ed dow n gr ad es of t h e l o an s sc h edul ed t o b e sol d. P ro v i de d t h at t h er e wer e

4 no do wn gr ades o r a nti ci pat ed d own gr ad es, t he l oa ns w er e t h en s ol d to t he F u nd s b ase d on M adi s on Cap ital’s a lloca tion po licy. Madis o n C a pital’s Princ ip al T rade Pro cess and Pric in g 9. M adis on Capi t al’ s sal es t o th e Fu nds wer e pr i n cip al tr a ns acti ons s ubj ect t o Se ctio n 20 6(3) o f th e Ad vi s ers A ct, w hi c h re q ui re s, a m o ng ot h er t hin gs, an ad vi s er a ct ing as pri n ci p al i n a transac tion with a client to disclose to such c li en t in wr iti ng before t h e c ompl et ion of s uc h tr an sa ct i o n t h e c apa cit y i n whi c h th e a dvi ser i s act i n g, a nd t o o bt ain t he co ns ent of t he cl ie nt. T o com pl y wi t h S ect i on 2 06(3) of t he A dvi se r s Act, ea ch F und c on tr a cte d wit h a thi r d - p art y a gent to ser ve as a n in dep ende nt r evi ew par t y (“F un ds’ R e view A g ent ”). T he F und s’ Revi ew A ge nt wa s res po nsi bl e f or r evi ewi ng t he pr op os ed t ra nsa cti on s a nd pr ovi din g c o nse nt t o t he s ale s o n b eh alf of th e F und s. 10. M adi s on C api t al’ s ad vis or y a gr eem ent s w it h t h e Fu nds re qui re d t h at al l tr an sa ct io ns bet w ee n Ma dis on C apit al a nd t he F unds be “no l es s f av or abl e to [t h e F un ds] a s the t er m s [t h ey] woul d obt ai n i n a co mpar abl e ar m’ s l en gth t ra nsa ct i on wi t h a n on - Affiliate.” T he a dvi s ory agr ee me nts f ur t her pr ovi de d t hat M a di s on C api t al w oul d m ak e pr i n ci p al t ra ns act i on s at “f ai r val ue as r e as on a bly det er mi ne d by M a dis on C ap it al wi t ho ut an y t hi rd - pa rt y val uat i on. ” T he Fu nds ’ P P M s al so i ncl ud ed di sc lo sur es t hat t he pu rc ha se pri c e pa id b y th e Fu nds f or l oa ns a c qui r ed fr o m M adi s on C api t al w oul d be “ an am o unt eq ual t o th e f air m ar k et v al ue t her eo f a s r ea so na bl y det erm i ne d b y [M adi s on C a pit al], co nsi st e nt wi t h a ppli ca bl e l aw a n d wi th o ut thi rd - p a r ty val uat i on. ” 11. M adi s on C api t al’ s wri t t e n v al uat i on p ol ic y, d uri ng t he R ele va nt P eri o d, pr ov i de d tha t M a dis on C api tal ’ s p ur c ha se pri ce, le ss t he un amor t i z ed l o an f ee or dis c ou nt at t he t im e of t he tr an sfer, wo uld be us ed as t he pri c e f or th e s al e of a l oa n, or p ort i on t her e of, b y M adi so n Ca pi ta l t o a Fu nd, “subjec t t o m a r ket adjustm ents t hat ma y b e m ade i n Ma dis on’s s ole di screti o n.” 12. In practice, Mad iso n Capita l so l d loan s to t he F unds at p ar val ue l ess t he un am ort iz ed l o an f ee, ba se d o n Madison C ap ital’s beli ef t hat t he clos i n g pri ce of t h e l o an gen eral l y repr es ent ed t he fai r mar ket val u e gi ve n th e l i mi t ed ti me peri o d b etwe e n ori gi n ati o n a nd t he sal e to the F u n ds, an d sin ce M a dis on C a pit al sol d lo an s t o t he F un ds onl y if t he y w er e ra t ed “B” or a b ov e at th e ti me of t he pr op os ed s al e by M adi so n Ca pit al. W he n M a di s on C api t al d eci ded t o sel l a l o an to a F u n d, i t s e nt t h e F u nd s’ R e vi ew A ge nt a co ns ent f orm wi th i nf orm at i o n a bout t h e l oa n, as w el l as cr e dit a nd unde rwr i ti ng mem or an da. In t he r eq ues t f or c on se nt, Mad iso n C apit al c er t if i e d t hat: (1) t he pur ch as e wa s b ei n g c o nduct ed on a n ar m’s l en gth bas i s i n a ccor da nce wi t h M a di so n Capi t al ’s m ana ge me nt a gre eme nt, an d (2) b as ed on cu r re nt m ar ket c ondi t i o ns, M adi s on C api t al bel i ev ed t he ac qui sit i on t o b e at f air m ar ket val ue. M a dis on C a pit al kn ew t he F un ds’ R evi ew Ag ent relied on Ma diso n C ap it al ’s certi fi c atio n th at th e s ale w as m a d e at fair mar ket val ue an d w as not r es po nsi bl e u nder i ts agr ee ment s wi t h t he Fu nds f or m aki ng it s o wn det er minat i o n of fai r mar ket val ue.

5 Sa le s B etw een M a rch 20 20 an d M ay 20 2 0 13. In Mar ch 20 20, t h e cor o navi r us pa n demi c beg an a nd t he re w as dis r upt ion in U.S. fi na nci al m arket s, i ncl udin g th e fi xe d in come mar ket s. C r ed it sp r ead s w id en ed su bst a ntiall y acro ss the fi xe d i ncome mar k et, re duc ing l i qui dit y a nd m ar ket vol ume i n l es s l iq uid f i xe d in co me mar ket s suc h a s t h e l o a n mar ket in w hic h th e Fund s in ve s ted, and r es u l t in g i n a decl i ne in pric es of m an y exi st i n g fi x ed i nco me i nv est m ent s. T hi s di s ru pti on l ast e d m ont h s. 14. In a M ar ch 1 1, 2 020, up dat e t o i n vest or s i n t he F u n ds, Ma dis on C apit al ac kn owl edge d th e m ark et dis r up ti o n a nd st ate d t hat “we anti ci p ate t h e pri vat e cr e dit m arke t c oul d see w i d eni ng of i nt er est r ate spr ea ds, r ef l ecti ng glo bal inst a bil it y an d t he dy na mi c n ews - cyc le . . . In th e n ea r ter m, we do ex pect a sl ow - d own i n pr i vat e e qui t y tr an sac t io n v ol um e. I nve st m ent ba nks and potential se ll er s w il l likely wait to see how the cu rre nt m acro env i ronment im p acts valua ti ons an d u nder l yin g c om pan y pe rf orm an ce bef or e tr ans act i n g.” C ons e qu entl y, i n r es p o nse t o m ar ket un cert ai nty an d to refl ect t he mar ket ’s r e sp onse t o i ncr eas e d ri s k to l en de rs durin g t he c oro na vir us pa nd emi c, b orr owe r s, i n cl udi ng M adis o n Ca pit al ’s borr owers, pai d hi g her i nt erest rat es o n any new ori gin ati o ns r ela ti v e t o t he r ate s o n l o a ns or igi nat ed ea rli er i n lat e 2 0 19 a nd t he begi nni ng of 20 20. 15. In r e sp o nse t o t he m ar ket di sr upti o n, M adi so n Ca pit al t o ok st e ps t o in cre as e mo ni t ori n g of it s e xis ti ng por t fo li o co mpa ni es a nd i mpl e me nt e d a day - ahead ch ec k to co nf ir m loan s being so ld still maintained a “B” credit rating or bette r ac cor di ng t o its p r op ri et ar y rat i ng syst em, but i t di d n ot p erf or m ot h er a n al ys es t o d et e rmi ne w het her t h e fa ir mar ket val ue of t ho se loa ns dec li ned as a res ult of t h e c ha n gi n g m ark et c ondi t i o ns. 16. Al l of t he l oa ns w er e su bje ct t o dow n war d p ri ce pr ess ur e, a nd cer t ai n b orr owe rs ’ op erat i ons w ere d ir e ctl y aff ect e d by mar ke t co nd itio ns, s u c h as a fr an chi se e o f a n at io nal fi tn ess ce nter ch ain th at tempora ril y paus e d in - pe r son op era tions. M adi so n Ca pit al ex ecut ed 1 43 sal es t o the F u n ds betw ee n Mar ch 20 20 a nd Ma y 2 0 20 at p ar val ue l ess t he un am ort i z ed l oa n fe e, wi t ho ut an y ma rk et a dju st ment s in l i ght of t he n - c urr e nt ma rk et c ondi t i on s. F or e ac h of the s e tr a ns acti o ns, M adis on Capi t al r epr es e nt ed t o t he F un ds’ Re vi ew A ge nt t h at t h e p ri c e wa s fa ir mar ket val ue bas e d o n c ur r ent mar ket con dit i o ns. W hi le, as i d e fr om one lo an, t he l oa ns sol d d uri ng t his peri o d ei th er c onti n ue t o p erf orm or ha ve bee n f ull y p ai d b y th e b orr ow ers, M a di s on C api t al f ai l ed t o d e te r m in e th e eff ect of th e mar k et disr upti on o n th e fai r ma rk et v alu e of th ose loa ns at t he t im e of pur c has e by t he F un ds.

6 Vio latio ns 17. Base d on t he co ndu ct d esc ri bed ab o ve, M a dis on C api t al wi ll f ul l y 1 vi ol ate d Secti on 2 06 (2) of t he A dv i s ers A c t, w hi ch m ak es i t un law f ul f or a ny in v es t me nt a d vis er, di re ctl y or in dir ec tl y, t o “ eng a ge i n a n y tr a ns act io n, pr a cti c e or c ou rs e of b usi n ess w hic h oper at es as a fr au d or de c ei t u p o n an y cli e nt or pr os p ect iv e cli ent. ” S ci en t er is n ot r e qu ir ed t o es ta bli s h a vi ol at i o n of Se c tion 20 6(2), b ut ra the r a v io lat i o n may res t on a f indi ng o f ne gl igen ce. SEC v. St e adm a n, 96 7 F. 2d 6 3 6, 64 3 n. 5 (D. C. Ci r. 199 2) (ci t i ng SEC v. C api t al Gai n s Re se a rc h B ur ea u, I n c., 375 U.S. 18 0, 194 - 95 (1 963)). 18. B a sed on the condu c t de sc ribed abo ve, Madiso n C ap i t a l wil lfu lly v iola ted Section 20 6(4) of the Ad vi ser s A ct, a nd R ule 206(4) - 8 th er eu nder, w hic h to g eth er m a ke it unl awf ul f or a ny inv est m ent advi se r t o a pool e d i nves tm e nt v ehi cl e t o (1) m ake a ny unt ru e st at eme nt of m a t eri al fa ct or t o omit t o st ate a mat eri al f a ct n eces s ar y to m a k e t he st ate me nts m a de, i n th e li gh t o f the ci rc umst a nc es u n der w hi ch t he y we re m a de, not m isl e adi ng, t o an y in v esto r o r pr osp ect i v e i n ve st or in the pooled investm ent vehic l e; or (2) ot h erw ise en g a g e in an y act, pr acti ce, or c ou rse of bus in ess tha t i s fr a ud ul ent, de ce pti ve, or ma ni pul at iv e wi t h re sp ect t o a ny i n vest or or pr os pe ct i v e i n ve stor i n the po ol e d i nv est me nt v ehi cle. S ci ent er i s not re qui re d to est abli s h a vi olat i on of Se ct i on 20 6(4) o f the A dvi ser s A ct a nd t he r ule s t h er e u nder. Id. at 64 7. Re s po nde nt ’s Rem e dial E ffo r ts 19. In det ermi ni ng to ac cept t he Of fer, t he Comm is si on cons ider e d remedi al act s prompt ly und er ta ken b y R espon dent. In M ay 2021, in res pons e to a C ommi ss i on st aff exami nat i on defi cie ncy let ter c oncer ning t he abo ve, M adis on Capi t al vol unt ari l y rei mbursed t he F unds $5, 01 0,854. 9 0, plus $203, 8 19. 69 in i nter est, as com pens ati on for t he sa le of l oans t o the F unds at pur chase pri ce l ess t he un amor t iz ed l oan fee. Ma dis on Ca pit al al so vol unt ari ly made cert ain enhan cements to i ts discl osures and p o li ci es regardi ng it s l oan trans fer pr acti ces. IV. In vi ew of t h e f ore g oi n g, th e Co mmis si o n deem s i t ap pr opri at e and i n t h e p ubl ic i nt ere st t o im p ose t he sa nct i o ns a gr eed t o i n R e sp ond ent’ s O ff er. Acc or din gl y, p urs ua nt to S e ct i ons 2 03 (e) an d 2 0 3(k) of t he Ad vis ers A ct, i t i s her eb y ORD ERED tha t: A. Re spon den t c ea se a nd d es ist f rom com m i tting o r ca us ing any v io la tions and a ny fut ur e vi ola ti on s of S e ct i o ns 2 06(2) a nd 2 0 6(4) of t he A d vi s er s A ct an d R ul e 20 6(4) - 8 there und er. 1 “W illfull y,” f or purpose s of imp osing relief unde r Sec tion 203(e) of the A dvisers Ac t “‘me ans no more than a per son char ged w ith t he duty knows wha t he i s doing.’” W onsove r v. SEC, 205 F. 3d 408, 4 14 (D.C. Cir. 20 00) (quoting Hughes v. SE C, 174 F.2d 969, 977 (D.C. Cir. 1949)). The re is no require ment that t he a ctor “ also be a wa r e that he is vio lating one of the Rules or Ac ts.” Tager v. SE C, 344 F.2d 5, 8 (2d Cir. 19 65).

7 B. Res pond ent i s cens ure d. C. Res p o ndent sha ll, wi t hin 14 da ys of t he entr y of thi s Or der, pay a civi l mo ney pe nal t y i n t he am ount of $ 9 00, 00 0 t o th e S ec ur it i es a n d E x ch an ge C ommi ssi o n. If t im ely pa ym ent is n ot ma de, addi ti on al int er es t s hal l ac cr u e pur su ant t o 3 1 U. S. C. § 3 717. P aym ent mus t b e ma de i n on e of t h e fol l owi ng wa ys: (1) Res p o ndent ma y tr a nsm it pay me nt el ect ro nic all y t o t he C ommi ssi on, w hic h will p rov i de detailed AC H tra ns fer/Fedwire instruction s u pon reques t; (2) Res p o ndent ma y m ak e dir ect pa ym e nt f ro m a ba nk ac c ou nt vi a P a y. g ov thr ough t he SEC website at htt ps: // w ww. se c. gov/ a bout / off i ces / of m. htm; or (3) Res p o ndent ma y p ay b y c ert if i e d ch ec k, b an k cas hi er ’s c he c k, or U nit ed S ta te s post al m one y or der, ma de p ay abl e t o t he S ec urit ie s a nd E xc ha nge Comm i ssi on an d h a nd - de li vered or m aile d to: Ent er pris e Ser vic es C ent er Acc o u nts R ec ei v a ble B r anch HQ B l d g., Ro om 18 1, AM Z - 341 65 00 S out h M a cAr t hur B o ul e var d Okl a homa Ci t y, OK 731 69 P aym ent s b y c he ck or m one y o rd er m ust be a cc omp ani ed by a c over l et te r i de nti fyi n g M adi s on C api t al F undi n g LL C as a R e sp on de nt i n th es e pr oc ee di ngs, an d t he fi l e n umbe r of t he se pro ce edi n gs; a cop y of t h e c ove r l et t er a n d c he ck or mo ne y or der m ust be s ent t o Jef fr e y Sh ank, Ass i st ant Di re ct or, Divi s io n of E nf or c em ent, Se cur i ti es a nd E xc han ge C ommi ssi o n, 1 7 5 W. Jac ks on B l vd., S ui t e 1 45 0, Chi ca g o, IL 6 06 04. D. P urs u a nt t o Se ct i on 30 8(a) of th e S ar ba n es - Ox l ey A c t of 2002, a Fai r Fund is cr eat e d f o r t h e pe n al ti es re fer e nc e d i n Se cti on I V.C ab o ve. Am ount s or der ed t o be pa id a s ci vi l mon ey penalties pu rsuant to th i s Or der shall be treated as penalties paid to the gove rnme nt f or all pur pos e s, i n clu di ng al l ta x p ur pos es. T o p res er ve t he det err ent eff ect of t h e ci vil p enal ty, Res p o ndent ag re es th at i n a ny R el at ed I n ves tor A cti on, i t s ha ll not ar g ue t hat i t i s e nti tl e d t o, nor sh a ll it benefit by, offset or reduction of a ny awa rd of c om p ens at ory da ma ge s by t he am ou nt of a ny part of R esp o ndent ’ s p aym e nt of a ci vil pe nalt y i n t hi s ac ti o n (“P e n al ty O ff s et ”). If t h e c our t i n an y Rel at ed I n vest or A ctio n gra nts s uch a Pen al t y Offs et, Re spon dent agr ee s t h at i t shall, wi thi n 3 0 d ays a fte r ent ry of a f i n al or de r gr ant i n g th e P e nal t y Of f set, not if y t he C ommi ss i o n’s co uns el i n thi s a ct i on an d p ay t he am o unt of t h e Pe nalt y Of f set t o th e S e cur it i es an d Ex c ha nge C o mmi s si o n. S uch a p aym e nt s hall n ot b e d ee me d an a ddit i o nal ci vi l pe nal t y a n d s hall not be de eme d t o c ha nge the am ount of th e ci vil p ena lt y i mp os ed i n t his p ro cee di n g. F or pur p ose s of t h is pa ra gra p h, a

8 “Re l ate d In ves t o r A ct i on” m ea ns a pr i vat e dam ages act i on br ou g ht a gai nst R e sp onde nt b y or o n be hal f of one o r mo re i nv est ors bas e d on s ub st a nti al l y t he s am e fa cts a s al l eg e d in t he O rd er ins t it ut e d by t h e C ommi ss i on i n thi s pr oc ee di ng. By the C om m iss ion. Vaness a A. C ountr y man S ecret ar y