Private Fund RIA Charged Over $1.2 Million for Excess Management Fees
SEC Releases
Introduction
The SEC has charged a $2.4 Billion AUM New York RIA over one (1) million dollars in civil penalties due to over $500,000 in excess management fees.
This charge is another example of the SEC’s current examination focus on actual investor harm.
SEC Chair, Paul Atkins, has stated previously that disclosure accuracy and investor protection will be a major focus for the SEC.
What Happened?
- The RIA’s LP agreement included a management fee along with the possibility of transaction fees including all transaction fees, advisory fees, and monitoring fees, among other fees.
- The RIA was required to credit back their Funds a portion of the transaction fees to reduce or offset the management fees.
- From October 2018 through November 2023 the RIA engaged in two fee offset calculation practices creating conflicts of interest not disclosed to the Funds or Limited Partners.
- For five (5) Portfolio Company investments, interest was collected on deferred transaction fees that were not included in corresponding fee offsets.
- For at least one (1) Portfolio Company, the RIA began its calculations using a reduced allocation of transaction fees to each Fund. This resulted in lower fee offsets than the Funds were entitled to, thereby increasing the management fees retained by the Firm.
- The RIA charged the Funds more than $500,000 in excess management fees.
- The RIA is ordered to pay over $1.2 million in penalties.
Vigilant’s Conclusion
This charge serves as a warning to Firms that conflicts on interest, disclosures, and fee calculations are likely to be under scrutiny by the SEC.
It is important for Firms to assess their billing practices and perform routine testing to ensure that their clients are being properly billed in accordance with the investment agreements.
Firms must also assess their business practices for any conflicts of interest and ensure that proper steps are taken to disclose and mitigate these conflicts.
For an assessment of your Firms disclosure accuracy and overall compliance program, please reach out to Vigilant to schedule a call with our Team.