


The U.S. Securities and Exchange Commission has reached a settlement with another private equity firms it accused of bad behavior.
The commission has been racking up victories against smaller names private equity including Oppenheimer Global Resource Private Equity Fund and Clean Energy Capital, firms where it claims to have found issues such as inflated fund valuations during fundraising and improper fees and expenses.
On Monday, the SEC announced a settlement with Lincolnshire Management, a relatively bigger name with $1.7 billion under management. The firm will pay more than $2.3 million to settle its case with the SEC, though without admitting or denying the findings, according to the SEC statement.
Lincolnshire, according to SEC documents, in 2001 integrated two portfolio companies—Peripheral Computer Support Inc and Computer Technology Solutions Corp—held in two different funds. The companies shared a management team and each paid a certain percentage of operating and administrative expenses governed by an expense sharing policy, the documents said.
In the examples in the SEC’s documents, Peripheral Computer Support, held in Lincolnshire’s debut 1993 fund, paid “more than its fair share of joint expenses” compared to Computer Technology Solutions, held in Lincolnshire Equity Fund II, a 1999 vintage pool, the SEC documents said. Lincolnshire Management sold the combined entity in 2013.
“Advisers that commingle assets across funds must do so in a manner that satisfies their fiduciary duties to each fund and prevents one fund from benefitting to the detriment of the other,” Julie Riewe, co-chief of the SEC Enforcement Division’s Asset Management Unit, said in a statement.
The firm ascribed the problem to a few “errors” in which the combined companies’ expense sharing policy was not followed.
“In some cases over the years, there were errors made and policies weren’t followed as they should have been,” James McLaughlin, managing director with Lincolnshire Management, told peHUB Monday. McLaughlin told Reuters the issue most likely arose from private litigation his firm was involved in and not from an SEC regulatory examination.
“We’re happy to conclude the matter with the SEC and stop the expense and time we’ve been spending [on this issue] and move forward with our business,” he said.
The Lincolnshire case doesn’t seem very egregious—this isn’t a case of taking money out of investors’ pockets, according to one limited partner with knowledge of the situation, but who has no connection to Lincolnshire. “This is just small potatoes,” the LP said.
However, the concern in a case like this could be the GP shifting expenses into an older fund to “dress up” the performance of the newer fund, which is the more important factor in fundraising, according to Scott Gluck, counsel with law firm Venable LLP, who has no involvement with the Lincolnshire case.
“The GP incentive might be to shift costs to the first fund because they’re more focused on the performance of the second fund,” Gluck said.
The SEC did not reply to additional questions Monday.
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