Insight Venture Management, Llc

Allegations: THE SEC FOUND THAT INSIGHT CHARGED EXCESS MANAGEMENT FEES TO CERTAIN FUNDS IT MANAGES DUE TO AN INACCURATE APPLICATION OF INSIGHTS PERMANENT IMPAIRMENT POLICY, FAILED TO DISCLOSE TO INVESTORS A CONFLICT OF INTEREST CONCERNING THAT POLICY AND DID NOT ADOPT OR IMPLEMENT WRITTEN POLICIES OR PROCEDURES REASONABLY DESIGNED TO PREVENT VIOLATIONS OF THE ADVISERS ACT RELATING TO THE ABOVE PRACTICES. INSIGHT DID NOT ADMIT OR DENY THE FINDINGS. Status: Final Sanction Detail: INSIGHT WAS ORDERED TO PAY A CIVIL MONETARY PENALTY IN THE AMOUNT OF $1,500,000. INSIGHT PAID $1,500,000 TO THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 21, 2023. INSIGHT WAS ALSO ORDERED TO PAY DISGORGEMENT AND PRE-JUDGMENT INTEREST IN THE AMOUNT OF $864,958.17. THAT PAYMENT WAS DEEMED SATISFIED BY PAYMENTS INSIGHT MADE IN MAY 2023 TO THE RELEVANT PRIVATE FUNDS. Summary: ON JUNE 20, 2023, THE SECURITIES AND EXCHANGE COMMISSION ("SEC") INITIATED A SETTLED ADMINISTRATIVE PROCEEDING AGAINST INSIGHT. INSIGHT NEITHER ADMITTED NOR DENIED THE SEC'S FINDINGS. FROM AUGUST 2017 THROUGH APRIL 2021, THE LIMITED PARTNERSHIP AGREEMENTS ("LPAS") OF CERTAIN OF THE FUNDS INSIGHT ADVISED PROVIDED THAT INSIGHT WOULD CHARGE MANAGEMENT FEES DURING THE FUNDS' POST-COMMITMENT PERIODS BASED ON EACH INVESTOR'S PRO RATA SHARE OF THE FUNDS' INVESTED CAPITAL, WHICH EQUALED THE ACQUISITION COST OF THE PORTFOLIO INVESTMENTS HELD BY THE FUNDS. THE LPAS FOR THESE FUNDS ALSO STATED THAT SHOULD INSIGHT DETERMINE THAT A PORTFOLIO INVESTMENT HAD SUFFERED A "PERMANENT IMPAIRMENT" IN VALUE, INSIGHT WOULD REMOVE AN AMOUNT EQUAL TO THE DIFFERENCE BETWEEN THE ACQUISITION COST AND THE IMPAIRED VALUE OF THE PORTFOLIO INVESTMENT FROM THE FUND'S INVESTED CAPITAL, WHICH WOULD SUBSEQUENTLY REDUCE THE BASIS USED TO CALCULATE THE MANAGEMENT FEES PAID BY THE RESPECTIVE FUND TO INSIGHT. INSIGHT DEVELOPED AND APPLIED CRITERIA TO ASSESS WHETHER AN INVESTMENT WAS PERMANENTLY IMPAIRED. IN APPLYING THESE CRITERIA, HOWEVER, INSIGHT ANALYZED PERMANENT IMPAIRMENT AT THE "PORTFOLIO COMPANY" LEVEL RATHER THAN AT THE "PORTFOLIO INVESTMENT" LEVEL. AS A RESULT, THE SEC FOUND THAT INSIGHT DID NOT CORRECTLY APPLY THE FUNDS' LPAS IN MAKING A PERMANENT IMPAIRMENT DETERMINATION AND, CONSEQUENTLY, FAILED TO ACCURATELY CALCULATE THE MANAGEMENT FEES IT CHARGED RESULTING IN INSIGHT CHARGING THE FUNDS EXCESS MANAGEMENT FEES OF $773,754. FURTHER, THE SEC FOUND THAT INSIGHT FAILED TO DISCLOSE TO INVESTORS THE EXISTENCE OF A CONFLICT OF INTEREST IN CONNECTION WITH ITS PERMANENT IMPAIRMENT CRITERIA. FINALLY, THE SEC FOUND THAT INSIGHT DID NOT ADOPT OR IMPLEMENT WRITTEN POLICIES OR PROCEDURES REASONABLY DESIGNED TO PREVENT VIOLATIONS OF THE ADVISERS ACT RELATING TO THE ABOVE PRACTICES. AS A RESULT, THE SEC FOUND THAT INSIGHT VIOLATED SECTIONS 206(2) AND 206(4) OF THE ADVISERS ACT AND RULES 206(4)-7 AND 206(4)-8 THEREUNDER. THE SEC ORDERED INSIGHT TO CEASE AND DESIST FROM COMMITTING OR CAUSING ANY VIOLATIONS AND ANY FUTURE VIOLATIONS OF THE REFERENCED SECTIONS AND RULES, IMPOSED A CENSURE, REQUIRED DISGORGEMENT AND PRE-JUDGMENT INTEREST OF $864,958, AND IMPOSED A CIVIL MONETARY PENALTY OF $1,500,000. AS PART OF THE RESOLUTION OF THIS MATTER, THE SEC RECOGNIZED REMEDIAL EFFORTS UNDERTAKEN BY INSIGHT IN MAY 2021 THAT INCLUDED: ADOPTING NEW AND MORE OBJECTIVE PERMANENT IMPAIRMENT CRITERIA AND DISCLOSING THAT CRITERIA TO INVESTORS; WAIVING ITS ABILITY GOING FORWARD TO REVERSE A PERMANENT IMPAIRMENT DUE TO CHANGED CIRCUMSTANCES; AND APPLYING ITS REVISED PERMANENT IMPAIRMENT CRITERIA RETROACTIVELY TO FOUR PORTFOLIO COMPANIES THAT HAD BEEN IDENTIFIED BY THE SEC, LEADING TO REIMBURSEMENT OF MANAGEMENT FEES AND INTEREST IN THE AMOUNT OF $3,821,032 TO THE RELEVANT PRIVATE FUNDS.