Do your Fund Documents Clearly Disclose Receipt of Accelerated Monitoring Fees?

Somewhat more reminiscent of the broken-windows enforcement era, two affiliated private equity advisers managing billions settled with the SEC on charges that they failed to make pre-commitment disclosures in fund governing documents related to accelerated fees received from portfolio companies.

Interestingly, according to the Settlement Order, the advisers had made some disclosures in fund documents about receipt of fees from portfolio companies; they had provided semi-annual financial reports to investors which gave the amount of accelerated fees; they had disclosed in Form ADV that they may receive accelerated fees; and they had shared the earnings with investors. The SEC focused on the lack of pre-commitment disclosures. The Order notes, without stating if this could have cured the violation, that the advisers did not consult the Limited Partner Advisory Committee, or seek the review and approval of the LPAC for receiving accelerated fees.

As a result of this practice of receiving accelerated fees without adequate pre-commitment disclosure, according to the Order, the advisers negligently violated Advisers Act Section 206(2) (fraud), Section 206(4) and Rule 206(4)-8 (obligations to investors), and Rule 206(4)-7 (the compliance program rule).

This case signals the SEC’s laser focus on fund document language and the timing of disclosures. Avoid Enforcement through clear and conspicuous language in your fund documents, or contact us to help you work through remedial steps.

Post written by Eugenie Warner

Related Content

Latest Content

Custody Concerns Continue

You timely filed your Form ADV within 90 days of fiscal year end, but did you properly answer all the questions related to custody? Not surprisingly, the Form remains confusing for many advisers, as does application of the Custody Rule itself. The SEC has issued guidance, letters to the industry, alerts and FAQs, but things … Continued

Blockchain Isn’t Hot Sauce

Guest post by Samson Williams, Partner – Axes & Eggs and Keynote Speaker – Ascendant CSS Spring 2019 Conference  I started telling people that blockchain isn’t hot sauce in mid-2017 to help explain why initial coin offerings (ICOs) were just the latest form of unregulated, online gambling. In November 2017, with Bitcoin nearing a high … Continued

The Importance of Effective ADV Disclosure: Staying Ahead of the Regulators

This ComplianceCast will discuss how firms can mitigate risk by having effective disclosure in their Form ADV Brochure. Our panelists will be CSS Ascendant Senior Consultant Ariana Monchick and Jessica Matelis, Partner at Foley & Lardner and former Senior Counsel at the SEC Division of Enforcement. They will discuss: Required disclosures The types of conflicts … Continued

Regulation Best Interest, Cybersecurity Top Concerns at IAA 2019 Compliance Conference

The Investment Adviser Association (IAA) represents the interests of investment advisers in Washington D.C., and the IAA Investment Adviser Compliance Conference 2019 was a forum for the discussion of future potential rulemaking. Cybersecurity and Fiduciary Rule considerations were headline topics, with custody and marketing right behind. The following is a summary of key issues discussed … Continued

The Challenges of Building a Global Compliance Program

Compliance programs face challenges in balancing global requirements with local exceptions while incorporating the fast pace of regulatory change, addressing critical business needs and obtaining the necessary resources necessary to manage the program. Trends and thinking on the subject were center stage at the recent CSS London event “Looking at the Year Ahead – Global … Continued

Mailing List

Subscribe to the Ascendant Compliance email list for the latest compliance resources, conferences, ComplianceCasts™, and more.

Loading form...

Contact Us

Ascendant works together with clients to identify and assess critical needs through customized plans. If you need assistance with compliance functions, regulatory services, cybersecurity or technology tools, we’d love to speak with you.