Fund Founder, Chief Legal Officer and Controller Sanctioned by SEC

The founder of a venture capital fund, assisted by its chief legal officer and controller, took more money from the fund as “advanced fees” than was actually due and owing. The money was used for other entities in the business cluster and personal expenses. In the Matter of Burrill Capital Management, LLC, Adm. Proc. File No. 3-17186 (March 30, 2016).

Steven Burrill is the founder of Burrill Capital, an exempt reporting adviser with the Commission. It advised several venture capital funds operated by Mr. Burrill including Fund III. Victor Herbert, also a Respondent, is an attorney who served as Chief Administrative Officer, Managing Director and Chief Legal Counsel of Burrill & Co., an affiliate of Burrill Capital, which raised venture capital funds focused on the biotechnology industry. Helena Sen, also a Respondent, served as the controller of Burrill & Co.

In 2006 Mr. Burrill formed Fund III, a $283 million venture capital fund focused on investments in life sciences. Its limited partnership agreement delineated the fees to be paid each fiscal quarter for services. There was no provision authorizing the advance payment of fees or for loans.

By late 2007 Burrill Capital began to experience cash flow shortages. Indeed, the Burrill related entities, as well as Mr. Burrill, had expenses which exceeded the revenue from the businesses. Mr. Burrill instructed Ms. Sen to take $400,000 from Fund III to make-up the cash shortfall as an “advance on management fees.” It was the beginning. In the middle of the next year the episode repeated.

From early 2009 through mid-2013 Respondents Sen, Hebert and Burrill met periodically to discus the cash flow of the affiliated entities. After discussing the shortages the three decided to continue taking money from Fund III. The funds taken from Fund III were booked as prepaid expenses. By the first quarter of 2012 the amount of money taken from Fund III exceeded the total amount of fees that would be owed through the expiration of the Fund which was set for February 2016.

Respondents also made additional capital calls which in some instances were inflated beyond what would have been needed by the Fund. By late 2013 the amount of money taken from Fund III exceeded the amount of fees that would be owed by about $13 million.

In late August 2013 the Investment Committee for Fund III became aware that virtually all of the committed capital in the Fund had already been called in and spent. An emergency meeting was called. Early the next month Messrs. Burrill and Herbert told the committee that about $18 million had been taken from the Fund as advanced fees and spent. The Order alleges violations of Advisers Act Sections 206(1), 206(2) and 206(4).

To resolve the proceeding each Respondent consented to the entry of a cease and desist order based on the Sections cited in the Order. Each was also barred from the securities business. Burrill Capital was censured. Respondents Burrill and Sen were denied the privilege of appearing and practicing before the Commission as accountants while Respondent Herbert was denied that privilege as an attorney. Respondents Burrill Capital and Burrill were directed to pay, jointly and severally, disgorgement of $4.6 million along with prejudgment interest and a $1 million penalty. Mr. Herbert was directed to pay a penalty of $185,000 while Ms. Sen will pay $90,000.