US Securities and Exchange Commission

SEC finds illegal fees or compliance failures at majority of US private equity firms

PUBLISHED : Wednesday, 07 May, 2014, 2:37pm
UPDATED : Wednesday, 07 May, 2014, 11:51pm

United States regulators have found illegal collection of fees or severe compliance shortfalls at more than half of the private equity firms they have examined since 2012, which could lead to tougher supervision of the industry or sanctions against companies.

"By far, the most common observation our examiners have made when examining private equity firms has to do with the adviser's collection of fees and allocation of expenses," said Drew Bowden, the director of the Securities and Exchange Commission's office of compliance inspections and examinations.

"We have identified what we believe are violations of law or material weaknesses in controls over 50 per cent of the time."

The SEC's review of the US$3.5 trillion private equity industry started after the 2010 Dodd-Frank Act authorised greater oversight of money managers, putting many firms under regulatory scrutiny for the first time.

Private fund managers were also required to file confidential reports allowing regulators to monitor activity that could be a threat to the broader economy.

The agency, which created a special unit of examiners to inspect firms with more than US$150 million in assets, has reviewed more than 150 private equity firms since October 2012.

The SEC intended to have examined 275 of the firms by the end of this year, Bowden said.

He did not name any of the firms that have been examined.

Ken Spain, a spokesman for the Private Equity Growth Capital Council, which represents more than 30 firms, declined to comment on the SEC's findings.


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