Prime Group Holdings to Pay $20.5M in SEC Penalties Related to Self-Storage Acquisition Fund

Prime Group Holdings LLC, a New York-based real estate group that owns self-storage and other property types, has agreed to pay $20.5 million to settle charges from the U.S. Securities and Exchange Commission (SEC) that it failed to adequately disclose real estate brokerage fees paid to a firm owned by its CEO. Without admitting or denying the SEC’s findings, Prime agreed to pay a $6.5 million civil penalty and more than $14 million in disgorgement and prejudgment interest, according to a press release.

The penalties stem from fees collected in connection to real estate deals made through Prime Storage Fund II between 2017 and 2021. The SEC concluded that the fund relied largely on Prime employees and independent contractors to find and purchase off-market transactions, and those people were then compensated, in part, from a 3% brokerage fee the fund paid on acquisitions. In total, the fund allegedly paid nearly $18 million in fees to a real estate brokerage that was wholly owned by Prime CEO Robert J. Moser. This effectively qualified the brokerage as a Prime affiliate, regulators said.

Because Prime failed to adequately disclose that an affiliate would receive the brokerage fees, the company wound up making misleading statements in the fund’s offering materials, according to the SEC.

“Funds, including those that invest in alternative asset classes, must ensure that their offering materials contain clear, accurate and adequate disclosures,” said Osman Nawaz, chief of the Complex Financial Instruments Unit of the SEC’s Enforcement Division. “In particular, information related to payments made to affiliates, and the potential conflicts of interest embedded in such arrangements, is critical to investors’ decisions.”

Prime hasn’t commented publicly on the SEC findings or settlement.

Headquartered in Saratoga Springs, New York, the company operates the Prime Self Storage brand and has more than $4 billion in real estate under management in 28 states. Its operating self-storage portfolio of 295 facilities comprises more than 20.7 million rentable square feet.

Sources:
SEC, SEC Charges Private Equity Firm Prime Group for Inadequate Disclosure of Fees Paid to Affiliate
Reuters, Prime Group Agrees to Pay $20.5 Million to Settle US SEC Charges
Pensions & Investments, Prime Group Agrees to Pay $20.5 million, Settling SEC Charges