Enforcement Initiatives as to Private Equity Funds (with Lofchie Comment)

Bruce Karpati, Chief of the SEC Enforcement Division’s Asset Management Unit, spoke at the Private Equity International Conference. Below is an outline of his remarks regarding the SEC’s Asset Management Unit and its work in the private equity area:

• The creation of the Asset Management Unit and the overall purpose and functions of the Unit;
• The growth in the area of private equity has led to the SEC bringing more private equity cases, a trend which Mr. Karpati expects to continue;
• A mention and very brief summary of the private equity cases that the SEC has brought;
• Mr. Karpati mentioned capital overhang, fundraising, valuation of illiquid assets and conflicts of interest as potential concerns in the private equity field;
• Explanation of (Enforcement) Risk Analytics Initiatives: how they work and how they are used by the Enforcement Division in targeting certain funds; and
• The obligations and roles of COOs and CFOs in implementing and overseeing compliance procedures and identifying issues.

Lofchie Comment: Anyone involved in regulatory compliance by funds (not only private equity funds) and advisers should review Question 3 of the attached, which lists a number of the types of misconduct that Mr. Karpati sees as cause for concern. Many of these involve the allocation of the expenses of the fund.

View Q&A in full here (links externally to SEC website).