Another Message to Private Fund Sponsors on Broker Registration – This Time from Enforcement

6 June 2016
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Key takeaways

  • On Wednesday, June 1, 2016, the U.S. Securities and Exchange Commission settled an enforcement action against a U.S. private equity firm for a number of violations, including acting as an unregistered broker.  In its settlement order and public statements, the SEC emphasized that the private equity firm had acted as an unregistered broker because it sourced, structured and negotiated the acquisition and disposition of portfolio companies for the funds that it managed and charged the portfolio companies transaction fees for those services.
  • All private equity fund sponsors should carefully review their transaction fee structures in light of this enforcement action.
  • In addition, the settlement serves as a useful reminder to review fund disclosures concerning fees and expenses and to obtain appropriate consents before engaging in transactions that present conflicts of interest.