July 10, 2018 Articles

SEC Private Equity Enforcement: A More Aggressive Approach

The SEC may be more inclined to bring breach of fiduciary duty or fraud claims where private equity advisors fail to disclose improper fee arrangements

Andrew J. Lichtman and Howard S. Suskin

Over the past several years, the Securities and Exchange Commission (SEC) has targeted private equity funds for various fee allocation arrangements and conflicts of interest. Rather than describing the fee practices as fraudulent, which would require a showing of scienter, the SEC has concluded that the private equity advisors committed disclosure violations. However, a recent proceeding in which the SEC secured a settlement based on both breach of fiduciary duty and fraud may foreshadow a more aggressive approach. Some context first.

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