Large Private Equity Firm to Pay $12.8 Million for Accelerated Portfolio Monitoring Fees

A large private equity firm agreed to pay over $12.8 Million in disgorgement, interest and fines for taking accelerated monitoring fees arising from the sale, IPO, and exit from portfolio companies.  The PE firm disclosed in the PPM that it would receive portfolio monitoring fees and disclosed in LP reports and the ADV that it received accelerated fees.  Nevertheless, the SEC faults the respondent for failing to disclose the accelerated fees before LPs committed capital and failed to submit the accelerated fees to the LP committee for approval.  The SEC accuses the firm of engaging in undisclosed conflicts of interest and failing to implement an adequate compliance program.

OUR TAKE: The SEC has attacked PE fees and expenses including portfolio monitoring fees, broken deal expenses, overhead costs, and consulting fees.  To avoid these issues, PE firms may want to re-think their business models and include all fees and expenses in a higher management fee and carried interest.