A senior U.S. Securities and Exchange Commission official said on Thursday any enforcement cases against private equity firms over how they handled fees and expenses could take years to build, but that may not be necessary in many instances.
The comments underscore the SEC’s efforts to downplay expectations of an upcoming crackdown after Andrew Bowden, a director at the SEC’s office of compliance, inspections and examinations, warned last May that more than half of the private equity firms the regulator had examined showed “violations of law or material weaknesses in controls.”
Speaking at Private Equity International’s CFO/COO 2015 Forum in New York on Thursday, Igor Rozenblit, co-head of the SEC’s private funds unit, said it was too early to assess the impact of the SEC’s so-called “presence exams” of private equity firms on possible enforcement action. He did not comment on the number of enforcement cases pursued.
[contextly_sidebar id=”XZFVoUMxaBzANFRKRastWOVQwVXBvsNX”]”We are now three months out from the end of the presence exam initiative and everyone is writing or tweeting about enforcement cases,” Rozenblit said.
The agency has made private equity fee disclosure and expenses allocation one of its top enforcement priorities after winning authority to police the sector in the 2010 Dodd-Frank Wall Street reform law.
Yet there have been less than a handful of enforcement cases made public in the last year that involve the handling of fees and expenses by private equity firms. These include small private equity firms Clean Energy Capital LLC and Lincolnshire Management.
“Enforcement investigations typically take a long time. A rocket investigation would be a year, a year and a half. An average investigation would be two years-plus, and in some cases longer than that,” Rozenblit said.
Many cases may be addressed without enforcement action, by the private equity firm agreeing to some sort of remediation, Rozenblit said.
The SEC may ask a private equity firm to refund some money to fund investors, though the solution does not always “have a dollar sign attached to it,” Rozenblit said. Some firms may just need to change their processes or disclosures, he added.
The Wall Street Journal reported on Wednesday, citing a Freedom of Information Act request with Washington State Investment Board, that private equity giant KKR & Co LP reimbursed fund investors last year for some fees and expenses it improperly charged following an SEC examination. Rozenblit declined to comment on the KKR case.
(Reporting by Greg Roumeliotis in New York; Editing by Richard Chang)
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