{"id":42076,"date":"2014-05-13T09:23:38","date_gmt":"2014-05-13T13:23:38","guid":{"rendered":"http:\/\/www.hedgeco.net\/news\/?p=42076"},"modified":"2014-05-13T09:59:21","modified_gmt":"2014-05-13T13:59:21","slug":"hedge-fund-compliance-sec-speaks-on-private-equity-violations","status":"publish","type":"post","link":"https:\/\/hedgeco.net\/news\/05\/2014\/hedge-fund-compliance-sec-speaks-on-private-equity-violations.html","title":{"rendered":"Hedge Fund Compliance: SEC Speaks on Private Equity Violations"},"content":{"rendered":"<p><a href=\"http:\/\/www.hedgeco.net\/news\/wp-content\/uploads\/2014\/05\/17Auburn18.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"alignleft size-medium wp-image-42078\" src=\"http:\/\/www.hedgeco.net\/news\/wp-content\/uploads\/2014\/05\/17Auburn18-199x300.jpg\" alt=\"17Auburn18\" width=\"199\" height=\"300\" srcset=\"https:\/\/hedgeco.net\/news\/wp-content\/uploads\/2014\/05\/17Auburn18-199x300.jpg 199w, https:\/\/hedgeco.net\/news\/wp-content\/uploads\/2014\/05\/17Auburn18-681x1024.jpg 681w, https:\/\/hedgeco.net\/news\/wp-content\/uploads\/2014\/05\/17Auburn18.jpg 1331w\" sizes=\"auto, (max-width: 199px) 100vw, 199px\" \/><\/a>New York (HedgeCo.Net) &#8211; Andrew Bowden, Director of OCIE (the SEC Office of Compliance Inspections and Examinations), recently shared some examination findings in a presentation\u00a0to the <a href=\"https:\/\/www.privateequityinternational.com\/pfc14\/\" target=\"_blank\">PEI Private Fund Compliance Forum<\/a>, hedge fund industry expert <a href=\"http:\/\/www.frontlinecompliance.com\/\" target=\"_blank\">FrontLine Compliance<\/a> reports.<\/p>\n<p>This was the first time the industry has been provided\u00a0with key insight into staff findings gathered from recent private equity examinations conducted by\u00a0the SEC.<\/p>\n<p>OCIE has examined 150 of the 275 private equity firms it plans to visit in 2014. According to <span style=\"font-size: 16px;\">Bowden, almost one half or 75 of the firms examined had significant findings in the area of fees\u00a0<\/span><span style=\"font-size: 16px;\">and expenses. This is an extraordinarily high percentage for such as small sample size of the\u00a0<\/span><span style=\"font-size: 16px;\">private fund industry.<\/span><\/p>\n<p><strong> Key violations found involve the following subject areas:<\/strong><\/p>\n<ul>\n<li>Limited Partnership Agreements &#8211; vague disclosures regarding expense allocations between\u00a0<span style=\"font-size: 16px;\">the fund, general partner, and manager; opaque disclosures surrounding valuation methods\u00a0<\/span><span style=\"font-size: 16px;\">and investment allocations; insufficient information rights for limited partners.<\/span><\/li>\n<li>Zombie Advisers &#8211; firms that continue to assess monitoring fees long after the life\u00a0<span style=\"font-size: 16px;\">expectancy of the fund has expired.<\/span><\/li>\n<li>Side-by-Side Management &#8211; the introduction of co-investments and separate accounts\u00a0<span style=\"font-size: 16px;\">complicates the firm\u2019s investment model and compliance programs do not always keep up\u00a0<\/span><span style=\"font-size: 16px;\">with these changes.<\/span><\/li>\n<li>Operators &#8211; the increased use of \u201coperators\u201d in the private equity model has led to improper<span style=\"font-size: 16px;\">allocations of the associated expenses of these individuals or their non-disclosure to\u00a0<\/span><span style=\"font-size: 16px;\">investors, creating a \u201cback-door\u201d fee charged to investors.<\/span><\/li>\n<li>Expense Shifting &#8211; moving of expenses from the adviser to the fund once the fund reaches\u00a0<span style=\"font-size: 16px;\">\u201cmiddle age\u201d without disclosures to investors.<\/span><\/li>\n<li>Hidden Fees &#8211; accelerated monitoring fees that become fully due and payable by the fund\u00a0<span style=\"font-size: 16px;\">upon certain key event triggers such as mergers, acquisitions, or IPOs; occurring without\u00a0<\/span><span style=\"font-size: 16px;\">timely and appropriate investor disclosures.<\/span><\/li>\n<li>Valuations &#8211; firms using a different valuation method than as described in the offering\u00a0<span style=\"font-size: 16px;\">documents or changing valuation methods frequently without reasonable explanation or\u00a0<\/span><span style=\"font-size: 16px;\">disclosures; cherry picking comparables.<\/span><\/li>\n<li>Marketing Materials \u2013 performance-based upon projections as opposed to actual valuations\u00a0<span style=\"font-size: 16px;\">without appropriate disclosures; misrepresentations regarding key team members.<\/span><\/li>\n<\/ul>\n<p>Several SEC Enforcement investigations were highlighted by Bowden, some public cases and others\u00a0still in the investigation phase.<\/p>\n<p><span style=\"color: #000000;\">Alex Akesson<\/span><br style=\"color: #000000;\" \/><span style=\"color: #000000;\">Editor for\u00a0<\/span><a style=\"color: #743399;\" title=\"hedge funds\" href=\"http:\/\/www.hedgeco.net\/\">HedgeCo.net<\/a><br style=\"color: #000000;\" \/><a style=\"color: #743399;\" href=\"mailto:alex@hedgeco.net\">alex@hedgeco.net<\/a><br style=\"color: #000000;\" \/><a style=\"color: #743399;\" title=\"hedge fund\" href=\"http:\/\/www.hedgeco.net\/\">HedgeCo.Net<\/a><span style=\"color: #000000;\">\u00a0is a premier\u00a0<\/span><a style=\"color: #743399;\" title=\"hedge fund database\" href=\"http:\/\/www.hedgeco.net\/\">hedge fund database<\/a><span style=\"color: #000000;\">\u00a0and community for qualified and accredited investors only. Membership in\u00a0<\/span><a style=\"color: #743399;\" title=\"hedge fund\" href=\"http:\/\/www.hedgeco.net\/\">HedgeCo.net<\/a><span style=\"color: #000000;\">\u00a0is FREE and EASY. We also offer FREE LISTINGS for\u00a0<\/span><a style=\"color: #743399;\" title=\"hedge fund\" href=\"http:\/\/www.hedgeco.net\/\">Hedge Funds<\/a><span style=\"color: #000000;\">!<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>New York (HedgeCo.Net) &#8211; Andrew Bowden, Director of OCIE (the SEC Office of Compliance Inspections and Examinations), recently shared some examination findings in a presentation\u00a0to the PEI Private Fund Compliance Forum, hedge fund industry expert FrontLine Compliance reports. This was [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-42076","post","type-post","status-publish","format-standard","hentry","category-hedgeco-news"],"_links":{"self":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/posts\/42076","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/comments?post=42076"}],"version-history":[{"count":3,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/posts\/42076\/revisions"}],"predecessor-version":[{"id":42088,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/posts\/42076\/revisions\/42088"}],"wp:attachment":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/media?parent=42076"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/categories?post=42076"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/tags?post=42076"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}