SEC Charges Private Equity Sponsor for Failure to Disclose Conflicted Transactions
The SEC announced that New York-based private equity firm Fenway Partners LLC and four executives have agreed to settle charges that they failed to disclose conflicts of interest to a fund client and investors when fund and portfolio company assets were used for payments to former firm employees and an affiliated entity.
According to the SEC’s order instituting a settled administrative proceeding:
- Fenway Partners entered into contracts with certain portfolio companies held by Fenway Capital Partners Fund III L.P. under which the companies paid fees to Fenway Partners that were offset against the management fees the firm earned from the fund.
- Beginning in December 2011, Fenway Partners and the four executives caused certain portfolio companies to terminate their payment obligations to Fenway Partners and enter into consulting agreements with an affiliated entity named Fenway Consulting Partners LLC.
- Fenway Consulting Partners provided similar services to the portfolio companies often through the same employees, but the fees paid to Fenway Consulting Partners were not offset against the management fees that the fund paid to Fenway Partners.
- Fenway Partners and certain executives asked fund investors to provide $4 million in connection with an investment in a portfolio company without disclosing that $1 million would be used to pay Fenway Consulting.
- Fenway Partners and certain executives caused an executive and two former Fenway Partners employees to receive $15 million in incentive compensation from the sale of a portfolio company for services that they had almost entirely provided when they were Fenway Partners employees.
- Fenway Partners also failed to disclose these payments as related party transactions in the financial statements they provided to investors.
Fenway Partners and the former executives did not admit or deny the findings in the related order.
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