SEC Charges Hedge Fund Firm with Changing Performance Fee without Investor Consent or Disclosure
The SEC has filed suit against a hedge fund manager that it alleges took excessive performance fees in violation of the partnership agreement that was never properly amended. The SEC charges that the defendants unilaterally amended the partnership agreement to remove the since-inception high water mark and the index comparison, thereby allowing the firm to receive thousands more in performance fees. The SEC charges that the changes were never disclosed or approved by the necessary 75% of investors as required by the partnership agreement. The SEC also charges violations of the compliance rule (206(4)-7) for failing to implement any reasonable compliance program. The SEC also alleges a litany of disclosure, recordkeeping, and aiding/abetting violations.