Private Equity Exec Charged with Mis-Allocating Investment Opportunities to Personal Fund
The SEC has commenced an administrative action against a private equity executive that it alleges misappropriated investment opportunities to a fund he controlled with a friend. The respondent served on the investment committee of a registered investment adviser to private equity funds. The SEC alleges that he reduced a subscription to an investment opportunity from the private equity funds so that he could allocate a larger portion to his own fund. The SEC charges that the respondent concealed the personal fund and the transaction details even after questions were raised by several transaction participants. The SEC claims that the activities violated the respondent’s fiduciary duty to the private equity funds and his firm’s integrity policy (i.e. Code of Ethics).
OUR TAKE: Private equity managers new to SEC registration will need to wrestle with limitations on personal investments and side-by-side investing imposed by the Advisers Act. Firms need to ensure full disclosure and prevent conflicts of interest that benefit the firm or its principals instead of their clients.