PE firms feel force of SEC crackdown

The number of enforcement actions filed by the Securities and Exchange Commission against private equity firms more than doubled year on year in the 12 months to 30 September, according to data released by the watchdog on Tuesday.

Eight enforcement actions relating to private equity advisors were brought by the commission over the period, up from three in the previous 12 months, the SEC said in its annual update for the 2016.

The cases included a first-of-its-kind charge, brought against Maryland-based Blackstreet Capital Management. The firm was fined $3.1 million after it was found to be engaging in brokerage activity, and charging fees, without registering as a broker-dealer.

Of the other affected firms, Blackstone Group paid the biggest penalty. In October, the asset manager was fined almost $39 million for failing to fully inform investors about benefits advisers obtained from accelerated monitoring fees and discounts on legal feels. Around $29 million of the settlement was distributed to affected fund investors.

A third case saw New York-headquartered Fenway Partners ordered to pay $20 million after its principals failed to tell their fund client they rerouted portfolio company fees to an affiliate, and avoided providing the benefits of those fees to the fund client in the form of management fee offsets.

In total, the SEC filed 868 enforcement cases over the 2016 fiscal year. Of those, a record 160 involved investment advisors or investment companies.

“Over the past three years, we have changed the way we do business on the enforcement front by using new data analytics to uncover fraud, enhancing our ability to litigate tough cases, and expanding the playbook bringing novel and significant actions to better protect investors and our markets,” SEC Chair Mary Jo White said.