A New York private equity fund advisor has agreed to pay nearly $1.9 million to settle SEC accusations that it hid management fees from its clients – a settlement that might have been much worse but for the firm’s extensive cooperation with regulators.
Monomoy Capital Management has marketed its in-house “Operations Group” as “an extensive in-house operational and financial restructuring team that drives business improvement throughout the Monomoy portfolio” since 2007. The Operations Group took 2 percent in management fees off the top, the Commission said in an April 22 settlement.
“By the time Monomoy began marketing Fund II, it had an established practice of billing fund portfolio companies for Monomoy’s costs of providing the Operations Group services rather than covering the costs out of its management fee. In particular, Monomoy charged the portfolio companies an hourly rate designed for Monomoy to recoup most (but not all) of its costs of maintaining its Operations Group,” the Commission said.
Cooperation saves the day
The fees made up more than 13 percent of Monomoy’s Fund II revenues between 2012 and 2016, the SEC said.
Monomoy’s CCO, Guy Lomet, didn’t respond to requests for comment. But he and his staff may have actually greatly assisted the firm. In the settlement agreement, the SEC lavishes the firm with praise for its cooperation.
“Throughout the staff’s investigation, Monomoy voluntarily and promptly provided documents and information to the staff,” the SEC said. “Monomoy met with the staff on multiple occasions and provided detailed factual summaries of relevant information. Monomoy was prompt and responsive in addressing staff inquiries.”
Second PF enforcement case
It was the second time in less than a week that the SEC has announced an enforcement action against a private fund adviser. On April 17, the Commission announced a $1 million settlement with Boston’s Old Ironsides Energy, which had been accused of misrepresenting the value of one of its drilling assets.
It could well be a coincidence, but OCIE director Pete Driscoll told sister publication RCW that his shop will issue a risk alert dedicated solely to the top findings of private fund examinations by the end of this year.
Old Ironsides was accused of advertising violations, and Monomoy of not disclosing conflicts of interest. It’s possible these actions are curtain-raisers for the promised risk alert.