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May 7, 2014

SEC Finds High Rate of Fee, Expense Violations at Private-Equity Firms

“A top Securities and Exchange Commission official said Tuesday the agency’s recent examinations of private-equity firms had found more than half allocated expenses and collected fees inappropriately, and in some cases, illegally.

“Drew Bowden, the director of the SEC’s Office of Compliance Inspections and Examinations, said the agency has identified ‘violations of law or material weaknesses in controls’ in more than 50% of the 112 examinations where it looked at fees and expenses. The violations include fees and expenses directly levied on fund investors and those charged by private-equity firms to the companies they own.

“‘This is a remarkable statistic,’ Mr. Bowden said. “For private-equity firms to be cited for deficiencies involving their treatment of fees and expense more than half the time we look at the area is significant.’

“Mr. Bowden’s comments at the Private Fund Compliance Forum 2014 in New York come as investors—including pension funds, wealthy individuals and endowments—have become more aggressive in seeking to lower the fees they pay to invest in private-equity funds. Such funds deploy investor cash in a number of different ways, including bread-and-butter corporate buyouts, distressed debt and real estate, to name a few.”

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Read full Wall Street Journal article here

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