SEC Director of Enforcement Highlights Actions against Private Equity Fund Advisers
Commentary by Steven Lofchie
In an address at the Securities Enforcement Forum West, SEC Enforcement Division Director Andrew Ceresney focused on actions against private equity fund advisers. Mr. Ceresney identified three activities by equity fund advisers that are scrutinized by the SEC: (i) undisclosed fees and expenses; (ii) the impermissible shifting and misallocating of expenses; and (iii) failures to disclose conflicts of interests adequately, including conflicts arising from fee and expense issues. He cited eight recent enforcement actions by the SEC against the private equity industry to illustrate these activities. Mr. Ceresney asserted that firms have improved their fee disclosures on their ADV Forms, as a result of these enforcement actions.
Commentary
The high-profile, high-penalty success cited by Director Ceresney will whet the SEC appetite for more investigations in this area. Private equity firms would be well advised to review Director Ceresney's speech and consider whether they are vulnerable to the kinds of enforcement actions he cites. The focus of a firm's internal reviews should be on practices that give rise to conflicts of interest.