/Private Equity Firm Charged with Failure to Disclose Accelerated Portfolio Monitoring Fees

Private Equity Firm Charged with Failure to Disclose Accelerated Portfolio Monitoring Fees

WHAT HAPPENED?

On December 21, 2017, the SEC charged a private equity fund adviser (“Respondent”) with failing to adequately disclose accelerated portfolio monitoring fees.  Between 2013 and 2015, Respondent accelerated the payment of future monitoring fees from four portfolio companies held by funds advised by Respondent.  While the limited partners were aware that Respondent entered into monitoring agreements with each portfolio company, they were never informed prior to their commitment of capital that some of the agreements permitted accelerated payment of such fees.  A conflict of interest thus arose that prohibited Respondent from consenting to this practice on behalf of the funds.

In addition to breaching its fiduciary duty, Respondent was charged with failing to implement written policies and procedures reasonably designed to prevent violations resulting from any conflicts of interest. Respondent’s failure to disclose the receipt of accelerated monitoring fees and to implement reasonably designed written policies and procedures violated Section 206(2) and 206(4) of the Advisers Act.  Accordingly, Respondent has been ordered to pay over $12.8 million in disgorgement, interest and fines.

WHAT DOES THIS MEAN FOR ME?

The SEC’s case follows a series of cases focusing on the way in which private equity firms charge fees and manage expenses.  It is imperative for private equity firms to establish a robust compliance program that effectively discloses all relative information about its business model as necessary and guarantees the firm’s abidance to all agreements. Please contact Fairview if you have any questions or concerns about this case.

About the Author:

Fairview
Founded in 2005 with the goal of developing streamlined back office solutions for investment advisers, Fairview is now servicing investment advisers, foundations and funds with over $185 billion in collective assets.