PE CCO barred over conflict of interest transaction

A private equity firm’s principals have been fined $750,000, and its former chief compliance officer barred from the industry, for allegedly making late capital contributions and “improperly borrowing” from three funds.

The Securities and Exchange Commission claimed Ohio-based Resilience Management, through its co-chief executive Bassem Mansour, borrowed money from the firm’s funds and delayed the payment of $10 million in general partners’ capital calls to the funds between 2010 and 2013.

“These practices were not authorized by the funds’ operating documents and were not adequately disclosed to the funds’ investors,” the SEC said in its filing.

The agency also alleged Mansour used false bookkeeping statements to hide the transactions and that George Ammar, Resilience’s chief financial offier from September 2008 to March 2013 and chief compliance officer from March 2012 to March 2013, also made false entries in Resilience’s books and records. In his case the purpose was to cover up his “misuse and improper advancement” of approximately $200,000 of non-client funds that he took from Resilience without authorization, the SEC alleged.

A new chief financial officer/chief compliance officer was appointed in 2013 and recommended that Resilience repay the outstanding amounts, which it did.

The SEC also deemed Resilience’s compliance policies and procedures “inadequate” as they did not address conflicts of interest inherent in the firm’s structure and operation, Mansour’s control of Resilience, the funds and the funds’ general partners, and his use of this control to borrow from the funds to pay Resilience’s expenses.

“Resilience’s compliance manual had no provisions addressing the disclosure of material conflicts of interest or acting in the best interest of clients in connection with material related party transactions involving Resilience and the Funds, or prohibiting borrowing, advances and other material transactions between Resilience and the Funds that were not explicitly authorized in the LPA,” the SEC filing said.

The affected parties neither confirmed nor denied the charges. As part of the remedy, Resilience has hired an independent compliance consultant to review its policies and procedures and conduct employee training. It has also hired new back-office staff including a CFO, CCO and general counsel.