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SEC charges PE adviser with misallocating expenses to its fund

Fund investors were charged expenses that were not covered by third-party co-investors without being told, according to the SEC.

The SEC has accused PE adviser Energy Capital Partners Management (ECP) with allocating undisclosed, disproportionate expenses to a private equity fund it advises.

As part of a settlement with the SEC, ECP agreed to pay a $1 million penalty and has voluntarily paid back more than $3.3 million to the fund.

According to the SEC, ECP led an investment consortium to acquire the stock of a public company in a take-private transaction that closed in March 2018. As part of that transaction, ECP agreed that third-party co-investors would not have to pay expenses related to a credit facility used to finance the deal.

The regulator said the expenses should have either been disclosed or not allocated as they were.

“Private equity fund advisers must follow their own agreements and ensure that investors do not pay more in fees or expenses than they bargained for,” said Adam Aderton, co-chief of the SEC Enforcement Division’s Asset Management Unit. “This resolution ensures that investors are repaid, while reaffirming the SEC’s commitment to focus on misconduct in the private fund space, including that involving co-investor issues.”

ECP agreed to a cease-and-desist order and censure without admitting or denying any wrongdoing, in addition to the $1 million fine.