The Securities and Exchange Commission (SEC) is alleging that Florida-based venture capital firm Backswing Ventures and its CEO Kyle Asman misled investors in a private fund over a multi-year period.

The case was filed in the Middle District of Florida and covers conduct the SEC says lasted from at least February 2020 through April 2023, Investmentnews first reported. 

At the center of the complaint is Backswing Ventures LP, also referred to as Backswing Ventures Fund I, LP, a Delaware partnership Asman formed to back early-stage businesses spanning areas such as defense, commercial real estate, technology, data and health care. The SEC alleges the manager took in more than $515,000 in management fees in the fund's first year, far more than what the offering materials allowed.

Backswing argues that the allegations related to the mismarketing of assets and the collection of management fees are "expressly false," given that Backswing's limited partnership agreement informed investors that Backswing and Asman had broad discretion to manage the fund. 

A spokesperson from Backswing provided additional information to Benzinga, clarifying some details of the SEC’s allegations. 

"The purported management fees are actually legal fees that the Fund paid relative to this SEC inquiry, and per the LPA, the Fund was permitted to pay any and all expenses. Asman forewent a salary for this reason, even though the LPA clearly outlines that he is entitled to one."

The SEC alleges the fund did not hire an independent auditor even though the LP agreement required one, and that the required financial reporting to limited partners was not delivered on the schedule described in the agreement. The regulator said an audit would have surfaced the management-fee issue.

Regulators also accuse Asman of overstating fundraising progress when speaking with potential investors in 2020. Asman allegedly told them that the fund had "raised 48 out of the 50 million," that it was "currently through $45 million of our $50 million capital raise," and that it was "just about fully subscribed." The SEC said fund records instead showed commitments of $3.8 million and contributions of $2.2 million as of Dec. 31, 2020.

On portfolio claims, the SEC alleges LPs received updates that labeled an artificial intelligence company holding as “Status: Invested” even though the fund never completed an investment in that business. The complaint says communications later included details such as share counts and valuation figures despite no position being established.

The complaint also addresses a firearm-detection company investment, alleging the fund invested $150,000 by November 2020, but later agreements for an additional $200,000 were canceled in April 2021 after payment was not made. The SEC claims subsequent 2021 updates still described a “Total Investment $350,000” and promoted an increase in value tied to a later financing round.

Backswing noted that no investor complaints have been made. 

The SEC states that the fund's marketing overstated Asman's background by describing “investment banking roles” and a “tenure as a banker” that the agency says amounted to short stints, including an internship and a brief job during college.

Backswing limited partner and general partner Michael Vergura Jr. provided an affidavit illustrating his full support for Asman's management of Backswing's operations.

Vergura's affidavit stated that "many of the aspects of this investigation are mind-boggling. Kyle's previous investment banking background (or the SEC's insinuated lack thereof) has little to no relevance to what we do at Backswing. Getting into a protracted back-and-forth about who calls whom a banker is an absolute waste of time and energy."

The spokesperson added that this is "largely a dispute over technical interpretations of agreements, fees, and fund manager background, rather than any misconduct."

The SEC is seeking disgorgement with prejudgment interest, civil penalties, permanent injunctions and a jury trial has been requested.

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