Virginia Adviser Pays Over $1 Million for Failing to Reduce Fees as a Result of Write Downs
October 29, 2020
The SEC has fined a private equity fund adviser concerning management fees that it charged to a fund under its management. The Limited Partnership Agreement (LPA) for the fund allowed the adviser to charge the fund a management fee based on total invested capital contributions, but required the fee to be reduced if certain triggering events occurred, including write downs of portfolio securities.
The SEC found that, from January 1, 2016 through October 1, 2019, five portfolio securities were subject to write downs under the LPA. The adviser did not reduce the quarterly management fee calculations during that period, causing the fund and its limited partners to pay over $900,000 more in management fees than should have been paid. The SEC found that the adviser violated certain antifraud provisions, but noted the adviser’s remedial acts and cooperation with SEC staff. The adviser agreed to a cease-and-desist order and censure, payment of disgorgement and prejudgment interest of $1,026,642.02, and a $175,000 civil money penalty.
See In the Matter of EDG Management Company LLC (Oct. 22, 2020), available at https://www.sec.gov/litigation/admin/2020/ia-5617.pdf.
