A private equity manager agreed to pay over $2.8 Million in client reimbursements, disgorgement, penalties and interest in connection with mis-allocating overhead expenses and undisclosed conflicts of interest. The SEC accuses the respondent of allocating a portion of staff expenses to the funds without disclosure or LP committee approval. The respondent also failed to disclose that the principal had a financial interest in two consulting firms that did work for both the funds and the manager. The SEC asserts that the firm failed to implement a reasonable compliance program, arguing that such a claim may rest on a finding of negligence.
This is low-hanging fruit for the SEC Enforcement Division. When you get sloppy with expense allocations and ignore interlocking financial interests, the SEC can easily make its case that the firm acted negligently by failing to implement a sensible compliance program.