Private Equity GP Received a Percentage of Group Purchasing Arrangement

A private equity sponsor agreed to pay over $770,000 in fines, disgorgement, and interest for failing to obtain prior approval of a group purchasing arrangement that benefited the sponsor.  The respondent entered into a group purchasing agreement with a third party organization that negotiated group discounts on business expenses such as rental cars and office supplies.  The third party agreed to pay the respondent 25% of net revenue received from the underlying vendors.  The SEC asserts that the respondent did not disclose or seek independent limited partner approval for the arrangement, which created an incentive for the sponsor to recommend the services.

OUR TAKE: Any transaction that benefits the GP that is not specifically disclosed up-front must be approved by all, or a committee of, independent limited partners.