Private Equity Firm Fined for Misleading Disclosures

A private equity firm settled SEC charges for failing to adequately disclose certain fees paid to an affiliated real estate brokerage firm.

In an Order, the SEC asserted that the private equity firm failed to disclose to investors "millions of dollars" in real estate brokerage fees that were paid to an affiliated entity wholly owned by the private equity firm's CEO. According to the SEC, the private equity firm did not adequately disclose to investors that brokerage fees in relation to the purchase of self-storage real estate properties would be paid to the affiliated entity and failed to explain that such fees would present conflicts of interest. The SEC found that the firm's disclosures – including in the partnership agreement, the offering memorandum and the due diligence questionnaires of the applicable fund – were materially misleading. The SEC found the private equity firm to be in violation of Securities Act Section 17(a)(2) ("Fraudulent Interstate Transactions").

To settle the charges, the private equity firm agreed to (i) cease and desist from further regulatory violations, (ii) pay disgorgement and prejudgment interest totaling over $14,000,000 and (iii) pay a civil monetary penalty of $6,500,000.