Category: Alerts

SEC Files Settled Changes Against Private Equity Fund Adviser

On April 22, the SEC announced the outcome of an Administrative Procedure against a private equity fund adviser based in New York. The advisor has agreed to pay $1,926,579 to settle changes for violations of the antifraud provision of Section 206 (2) of the Investment Advisors Act of 1940.

Conflicted Expense Reimbursements

According to the SEC’s order, the adviser provided fund portfolio companies with operationally-focused consulting services through a group of the adviser’s employees who were known as the Operations Group. The adviser charged the portfolio companies for the services of the Operations Group, which allowed them to recoup most of the costs of these employees. The Order found that the adviser did not provide full and fair disclosure to the limited partners of the private fund that it would charge the portfolio companies for these services, and it failed to obtain consent to the associated conflicts of interest.

Since 2014, OCIE has increased its scrutiny of Private Equity industry, in particular, the SEC has focused on the fee and expense allocation practices of private equity managers and conflicts of interest.2 In 2020, the scrutiny continues, as evidence by the number of enforcement cases brought in this area and the OCIE 2020 Examination priorities; “Moreover, OCIE will review RIAs to private funds to assess compliance risks, including controls to prevent the misuse of material, non-public information and conflicts of interest, such as undisclosed or inadequately disclosed fees and expenses, and the use of RIA affiliates to provide services to clients.”3

What Should You Do?

Alaric Compliance Services believes now is a good time to review your firm’s compliance policies and procedures related to expense allocation practices to ensure that they are reasonably designed and followed to prevent deficient fee allocation and disclosure practices. CCO’s may need help to increase their monitoring of fee allocation disclosures, with a focus on the accurate and complete disclosure of fees and expenses to investors including consent for the charging of certain expenses that present conflicts of interest. Alaric can supplement a CCO’s team with knowledgeable experts ready to review compliance issues such as expense allocations, disclosures and conflicts of interest.

What Can We Do For You?

With over 275 years of cumulative financial services compliance expertise, Alaric has managed over 100 regulatory examinations while serving as chief compliance officer. Leveraging this experience, our team of former regulators, lawyers, and in-house chief compliance officers can help your firm keep your compliance program healthy.

Call Alaric today to learn more about our compliance services at 1-888-243-2448 or email us or visit our website, at


2 Bowden, Andrew J., Director, OCIE, “Spreading Sunshine in Private Equity,” speech delivered May 6, 2014 at Private Equity International Private Fund Compliance Forum 2014,–spch05062014ab.html

3 OCIE Examination Priorities for 2020,


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