Firm Censured for Failing to Disclose Investment in Service Provider

from Cipperman Compliance 

The SEC fined and censured a private equity fund manager for failing to disclose that the principals had personally invested in an IT firm that it had engaged. The respondent utilized the IT firm to perform due diligence before investing in portfolio companies. The SEC asserts that the firm failed to disclose that firm principals invested in the IT firm and occupied Board seats and that the IT firm’s CEO is the brother-in-law of one of the principals. Although the SEC acknowledges that neither the PE firm nor the principals profited and that the amount paid to the IT firm was not a material portion of its revenue, the SEC faults the firm for failing to disclose this conflict of interest in the PPMs, ADV, or to the LP Advisory Committee.

OUR TAKE: The SEC will bring an enforcement action even without any underlying client harm or benefit to the accused. Here, the mere failure to disclose a personal investment results in a public enforcement action.


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