Two funds managed by private equity firm Thomas H Lee Partners will settle for $5 million and pay a $1.5 million fine to the Securities and Exchange Commission for allegedly violating securities rules over potential conflicts of interest tied to collection of fees from its portfolio companies.
Between 2013 and 2015 the funds received accelerated fees following the early termination of portfolio company agreements, one of which was a sale and four of which were the result of initial public offerings, the agency said in its administrative proceeding ruling on Friday.
In one of the funds, 78 percent of the limited partners were informed that the fund would take accelerated fees from the sale of portfolio companies as outlined in the limited partnership agreement, but the firm failed to tell the remaining 22 percent. The agency found that in all but one of the instances in which the funds took accelerated fees, those vehicles held an ownership stake in the portfolio companies and continued to provide consulting and advisory services to them.
“Because its receipt of accelerated fees from portfolio companies posed at least a potential conflict of interest as between it and the funds, THL could not effectively consent to this practice on behalf of the funds,” the SEC wrote.
One of the funds, THL Managers VI, reported assets under management of about $5.6 billion as of the end of March 2017.