- SEC Settles Charges With Private Equity Fund Advisers Over Misallocated Expenses
- November 11, 2015
- Law Firm: Sutherland Asbill Brennan LLP - Washington Office
- Last week, the SEC announced that it had agreed to settle charges with two more private equity fund advisers. In its action against Cherokee Investment Partners, LLC and Cherokee Advisers, LLC (the “advisers”), the SEC alleged that the advisers inappropriately allocated $455,698 of their own consulting, legal and compliance-related expenses to the private equity real estate funds they managed. Although the funds’ limited partnership agreements disclosed that the funds would be charged for expenses that in the good faith judgment of the general partner arose out of the operation and activities of the funds, including the legal and consulting expenses of the funds, the SEC alleged that there was no disclosure that the funds would be charged for the advisers’ legal and compliance expenses. In addition, the SEC alleged that the advisers failed to adopt written policies or procedures reasonably designed to prevent violations of the Advisers Act arising from the allocation of expenses to the funds, and that the advisers failed to adequately review, no less frequently than annually, the adequacy of their policies and procedures to prevent violations of the Advisers Act and the rules thereunder, and the effectiveness of their implementation. To settle the allegations, the advisers agreed to pay a civil monetary penalty in the amount of $100,000. The advisers also reimbursed the funds for the full amount of expenses previously misallocated to them.
The SEC release announcing the settlement can be found at: http://www.sec.gov/litigation/admin/2015/ia-4258.pdf.