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ARTICLE · 07 JANUARY 2022

Private Equity Fund Adviser Settles SEC Charges For Improperly Offsetting Fees

Hogan Lovells Cadwalader
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A private equity fund adviser settled SEC charges for (i) improperly offsetting portfolio company fees against management fees charged to clients and (ii) failing to clarify management fee calculations to clients.

United StatesFinance and Banking
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A private equity fund adviser settled SEC charges for (i) improperly offsetting portfolio company fees against management fees charged to clients and (ii) failing to clarify management fee calculations to clients. According to the SEC, these violations resulted in millions of dollars of overpayment to the investment adviser.

In its Order, the SEC found that the investment adviser distributed offering documents, which inconsistently described plans to offset fees, resulting in failed reimbursements as a result of a deficient compliance program. The SEC determined that these acts violated Sections 206(2) and 206(4) ("Prohibited Transactions by Investment Advisers") of the Investment Advisers Act, as well as Rules 206(4)-7 ("Compliance Procedures and Practices") and 206(4)-8 ("Pooled Investment Vehicles") thereunder. The SEC censured the investment adviser and ordered a $4.5 million civil penalty under the terms of the settlement.

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