SECURITIES ACT OF 1933
Release No. 8457 / August 12, 2004

INVESTMENT ADVISERS ACT OF 1940
Release No. 2276 / August 12, 2004

ADMINISTRATIVE PROCEEDING
File No. 3-11585


In the Matter of

THAYER CAPITAL PARTNERS, TC EQUITY PARTNERS IV, L.L.C., TC MANAGEMENT PARTNERS IV, L.L.C., AND FREDERIC V. MALEK

Respondent.


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ORDER INSTITUTING ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933 AND SECTIONS 203(e), 203(f) AND 203(k) OF THE INVESTMENT ADVISERS ACT OF 1940, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS AND CEASE-AND- DESIST ORDERS

I.

The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted against Thayer Capital Partners ("Thayer"), TC Equity Partners IV, L.L.C. ("TC Partners IV"), TC Management Partners IV, L.L.C. ('TC Management IV") pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Sections 203(e) and 203(k) of the Investment Advisers Act of 1940 ("Advisers Act") and against Frederic V. Malek ("Malek") pursuant to Section 8A of the Securities Act and Sections 203(f) and 203(k) of the Advisers Act.

II.

In anticipation of the institution of these proceedings, Thayer, TC Partners IV, TC Management IV, and Malek (collectively referred to as "Respondents") have submitted Offers of Settlement ("Offers") that the Commission has determined to accept. Solely for the purposes of these proceedings and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over them and the subject matter of these proceedings, Respondents consent to the entry of this Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Sections 203(e), 203(f) and 203(k) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions and Cease-and-Desist Orders ("Order"), as set forth below.

III.

On the basis of this Order and Respondents' Offers, the Commission finds1 that:

Respondents

1. Thayer is a Washington, DC-based private equity firm founded in 1996 that manages funds totaling over $1.2 billion. Thayer organizes funds that provide investment opportunities for its participants. Thayer is also associated with at least four unregistered investment advisers, including TC Partners IV and TC Management IV, which are Thayer affiliates. At all relevant times, Thayer has acted as an unregistered investment adviser.

2. TC Partners IV is the general partner of Thayer Equity Investors IV, L.P. ("Thayer IV"), an $880 million private equity fund founded in 1998 in which the Connecticut state pension funds is a limited partner. Thayer, through its senior management, controls TC Partners IV. At all relevant times, TC Partners IV has acted as an unregistered investment adviser.

3. TC Management IV is a private management company that manages, and receives fees from, Thayer IV. At all relevant times, TC Management IV has acted as an unregistered investment adviser.

4. Malek, age 67, is a resident of McLean, Virginia. Malek is the Chairman of each of the Thayer affiliates.

Summary

5. In November 1998, the then-Connecticut Treasurer invested $75 million of the Connecticut state pension fund with Thayer IV. In connection with this investment, Thayer, through Malek, agreed to hire a consultant at the Treasurer's request. This consultant, who was paid nearly $375,000 by TC Management IV, had no previous involvement with the proposed investment and ultimately performed no meaningful work on the deal. Respondents failed to disclose this arrangement to the Connecticut pension funds.

Facts

6. In August 1998, Thayer began soliciting the Connecticut Treasurer's office for an investment in a new fund Thayer was forming, Thayer IV. Staff of the Treasurer's office performed due diligence on the proposed Thayer IV investment through November 1998.

7. On November 3, 1998, the Treasurer, the Republican candidate, lost to the Democratic candidate in his election bid.

8. By in or about mid-November 1998, due diligence had been completed on Thayer IV, a Treasury investment officer had prepared a memorandum to the Treasurer recommending an investment of up to $25 million, and the transaction was ready to be signed. During that same period, the Treasurer decided that he would use the proposed Thayer investment to provide a fee to a friend and political supporter, a former state Democratic legislative leader (hereafter referred to as the "Treasurer's Associate"), who had no previous involvement in the proposed investment.

9. On November 11, 1998, the Treasurer telephoned Malek and told him that the investment was going forward, but that he could make no promises. The Treasurer suggested to Malek that Thayer hire the Treasurer's Associate as a consultant to help with the new administration. The incoming Treasurer, like the Treasurer's Associate, was a Democrat.

10. Shortly after his November 11, 1998 telephone call with Malek, the Treasurer telephoned the Treasurer's Associate and told him to call Malek because Malek had a job for him. Thereafter, Malek and the Treasurer's Associate met and reached an agreement in principle whereby Thayer would pay the Treasurer's Associate, through the Treasurer's Associate's consulting firm, 0.7% of the amount Connecticut invested if the transaction closed.

11. On November 23, 1998, the Treasurer met with Malek in Washington, D.C. to discuss Thayer hiring the Treasurer's Associate. The Treasurer told Malek that it would be helpful to the Treasurer if Thayer hired the Treasurer's Associate, but that it would also be acceptable if Thayer did not. The Treasurer also told Malek that the Connecticut pension funds would make an investment in Thayer IV, but the only question was the size of the investment.

12. The Treasurer's Associate signed a written consulting contract with TC Partners IV dated November 24, 1998, the same day that the Treasurer signed the Thayer IV closing documents. The contract called for the Treasurer's Associate to receive 0.7% of the amount that Connecticut invested in Thayer IV. The Treasurer had increased the amount of Connecticut's investment in Thayer IV to $75 million as a way to increase the size of the Treasurer's Associate's fee to $525,000. The investment deal closed on November 30, 1998, when TC Partners IV signed the Thayer IV documents.

13. In December 1998, TC Management IV made its first payment to the Treasurer's Associate in the amount of $25,000. When the new Connecticut Treasurer took office in January 1999, Thayer accommodated her request to reduce the amount of the pension funds' investment in Thayer IV from $75 million to $53.5 million. Thayer then reduced the amount of the Treasurer's Associate's fee accordingly and paid him an additional $349,500 in March 1999, for total payments of $374,500.

14. In fact, the Treasurer's Associate ultimately performed no meaningful services in connection with the Thayer IV investment and Thayer, TC Partners IV, TC Management IV, and Malek failed to take adequate steps to determine what services, if any, the Treasurer's Associate would, or actually did, perform in connection with that investment. The Respondents also should have taken further steps to consider whether the Treasurer's request that Thayer hire the Treasurer's Associate may have been part of a corrupt agreement between the Treasurer and the Treasurer's Associate to provide the Treasurer's Associate with a significant fee in connection with an investment in which he had no involvement.

15. As the adviser to Thayer IV, TC Partners IV had an obligation to disclose to the Connecticut pension funds that, at the request of the Connecticut Treasurer, the Treasurer's Associate, who had no previous involvement with the proposed investment, was paid a fee in connection with the Treasurer's investment of state pension funds with Thayer IV for which he did no meaningful work. As an investment adviser that organizes funds which provide investment opportunities for its participants (including Thayer IV), Thayer had a similar disclosure obligation to the Connecticut pension funds. As an investment adviser that receives management fees from Thayer IV, TC Management IV also had a similar disclosure obligation to the Connecticut pension funds. As an associated person of Thayer, TC Partners IV, and TC Management IV and as the person who arranged to hire and pay the Treasurer's Associate, Malek also had an obligation to disclose the arrangement to the Connecticut pension funds.

Violations

16. As a result of the conduct described above, Thayer, TC Partners IV, TC Management IV, and Malek willfully 2 violated Section 17(a)(2) of the Securities Act, which prohibits in connection with the offer or sale of securities obtaining money or property by means of untrue statements of material facts or omissions to state material facts necessary in order to make statements made, in light of the circumstances under which they were made, not misleading.3 Respondents failed to disclose material facts to the Connecticut pension funds, including that, at the request of the Connecticut Treasurer, the Treasurer's Associate, who had no previous involvement with the proposed investment, was paid a fee in connection with the Treasurer's investment of state pension funds with Thayer IV for which he did no meaningful work.

17. As a result of the conduct described above, Thayer, TC Partners IV, and TC Management IV willfully violated Section 206(2) of the Advisers Act, which prohibits investment advisers from engaging in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client.4 Respondents failed to disclose material facts to the Connecticut pension funds, including that, at the request of the Connecticut Treasurer, the Treasurer's Associate, who had no previous involvement with the proposed investment, was paid a fee in connection with the Treasurer's investment of state pension funds with Thayer IV for which he did no meaningful work.

18. As a result of the conduct described above, Malek willfully aided and abetted and caused Thayer's, TC Partners IV's, and TC Management IV's violations of Section 206(2) of the Advisers Act.

UNDERTAKINGS

Respondents have undertaken and agreed to cooperate fully with the Commission in any and all investigations, litigations or other proceedings relating to or arising from the matters described in the Order. In connection with such cooperation, Respondents have undertaken:

    i. To produce, without service of a notice or subpoena, any and all documents and other information reasonably requested by the Commission's staff;

    ii. To be interviewed, and to make their officers, directors, employees, agents and other representatives available to be interviewed, by the Commission's staff at such times as the staff reasonably may direct;

    iii. To appear and testify, and to make their officers, directors, employees, agents and other representatives available to appear and testify, in such investigations, depositions, hearings or trials as may be requested by the Commission's staff; and

    iv. That in connection with any testimony of Respondents or their officers, directors, employees, agents and other representatives to be conducted by testimony session, deposition, hearing or trial, pursuant to a notice or subpoena, Respondents:

      a. agree that any notice or subpoena for such may be served by regular mail or facsimile on their attorney, Laurence Urgenson, Esq., Kirkland & Ellis, LLP, 655 15th Street N.W., Washington, D.C. 20005; and

      b. agree that any notice or subpoena for such in any action pending in a United States District Court may be served, and may require testimony, beyond the territorial limits imposed by the Federal Rules of Civil Procedure.

In determining whether to accept the Offer, the Commission has considered these undertakings.

IV.

In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions specified in Respondents' Offers.

Accordingly, IT IS HEREBY ORDERED that:

    A. Pursuant to Section 8A of the Securities Act and Section 203(k) of the Advisers Act, Respondents Thayer, TC Partners IV, TC Management IV, and Malek shall cease and desist from committing or causing any violation and any future violation of Section 17(a)(2) of the Securities Act and Section 206(2) of the Advisers Act;

    B. Pursuant to Section 203(e) of the Advisers Act, Respondents Thayer, TC Partners IV, and TC Management IV are censured;

    C. Pursuant to Section 203(f) of the Advisers Act, Respondent Malek is censured;

    D. IT IS FURTHER ORDERED that, within seven (7) days of the entry of this Order, Thayer shall pay a civil money penalty in the amount of $150,000. Such payment shall be: (A) made by United States postal money order, certified check, bank cashier's check or bank money order; (B) made payable to the Securities and Exchange Commission; (C) hand-delivered or mailed to the Office of Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that identifies the payor as a Respondent in these proceedings, the file number of these proceedings, and the Commission's case number, a copy of which cover letter and money order or check shall be sent to the District Administrator, Securities and Exchange Commission, Boston District Office, 73 Tremont Street, Suite 600, Boston, Massachusetts, 02108; and

    E. IT IS FURTHER ORDERED that, within seven (7) days of the entry of this Order, Malek shall pay a civil money penalty in the amount of $100,000. Such payment shall be: (A) made by United States postal money order, certified check, bank cashier's check or bank money order; (B) made payable to the Securities and Exchange Commission; C) hand-delivered or mailed to the Office of Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that identifies Malek as a Respondent in these proceedings, the file number of these proceedings, and the Commission's case number, a copy of which cover letter and money order or check shall be sent to the District Administrator, Securities and Exchange Commission, Boston District Office, 73 Tremont Street, Suite 600, Boston, Massachusetts, 02108.

By the Commission.

Jonathan G. Katz
Secretary

Endnotes