Private Fund Manager Charged Salary Expenses to Funds
A private fund manager agreed to pay nearly $2 Million in disgorgement, fines, and penalties for charging officer and director salary expenses to the funds it managed. Although the funds’ offering documents stated that salary expenses of controlling persons would not be charged to the funds, the respondent very narrowly construed the term “controlling person” and charged the funds salary expenses of a large group of officers and directors. The SEC alleges that the financial statements did not separately identify these amounts from other “reimbursable expenses” described in the footnotes to the financials. The SEC charges violations of the 1934 Act’s anti-fraud rules because the fund manager was not a registered investment adviser and the funds invested in equipment leases rather than securities.
OUR TAKE: The SEC generally takes a very negative view of charging management company overhead expenses to funds, whether or not the disclosure is sufficient, the