SEC Charges Private Equity Execs with Securities Fraud
The SEC has instituted enforcement proceedings against two private equity executives for concealing material information about executive compensation in proxy and other SEC filings for a registered business development company. The SEC alleges that the execs intentionally concealed certain payments to a key employee who was responsible for selecting investments. The SEC charges that the key employee received certain consulting compensation, which was really disguised premium for stock options. The SEC alleges that the premium paid was material and should have been disclosed to public shareholders.
OUR TAKE: This action demonstrates several recent SEC themes. First, the SEC has been active with respect to 1940 Act compliance for BDCs, which is the SEC’s only connection to the private equity industry (unless Congress subjects private equity firms to adviser registration). Second, the SEC has named controlling executives, and not just firms, as respondents. Third, the SEC has brought several recent cases alleging insufficient proxy disclosure.