Four affiliated private equity fund advisers agreed to a $52.7 million settlement with the SEC in connection with charges that the advisers (i) misled fund investors about fees and a loan agreement, and (ii) failed to supervise a senior partner who had charged personal expenses to the advised funds.
The SEC asserted that the advisers:
- failed to adequately disclose their practice of accelerating payments of future monitoring fees owed by funds' portfolio companies upon the sale or initial public offering of those companies, to the advisers' benefit and fund investors' detriment, and consented to this practice on behalf of their firm's advised funds despite this conflict of interest;
- failed to disclose certain information about interest payments made on a loan between the advisers' affiliated general partner and five funds;
- failed to adopt and implement written policies reasonably designed to prevent violations of the Investment Advisers Act arising from the undisclosed receipt of accelerated monitoring fees;
- failed to reasonably supervise a former senior partner who charged personal items and services to certain funds and those funds' portfolio companies improperly; and
- failed to implement its policies and procedures concerning employees' reimbursement of expenses.
SEC Enforcement Division Director Andrew J. Ceresney emphasized that the firms' failure to inform investors of fees and conflicts of interest has become a recurring "theme" in enforcement actions:
A common theme in our recent enforcement actions against private equity firms is their failure to properly disclose fees and conflicts of interest to fund investors. Investors in . . . [the] funds were not adequately informed about accelerated monitoring fees and separately allocated loan interest, and therefore were unable to gauge their impact on their investments.
Without admitting or denying the SEC's findings, the firm agreed to cease and desist from additional violations and to pay (i) $37,527,000 in disgorgement, (ii) $2,727,552 in interest, and (iii) a $12,500,000 penalty. The firm also agreed to distribute the disgorgement and interest amounts to affected fund investors.
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