SEC Charges a New York-Based Investment Adviser for Breach of Fiduciary Duty
April 24, 2018
File No. 3-18449
April 24, 2018 – The Securities and Exchange Commission today announced charges against a New York-based investment adviser for failing to disclose to its private equity clients conflicts of interest surrounding its receipt of compensation from a company that provided services to fund portfolio companies. The adviser, WCAS Management Corporation (WCAS), has agreed to settle the charges and will be censured and ordered to pay disgorgement, prejudgment interest, and a civil penalty.
According to the SEC’s Order Instituting Proceedings, WCAS entered into an agreement (Agreement) with a company that provided services to portfolio companies owned by the private equity funds WCAS managed. Under the Agreement, WCAS received a share of the revenue the service provider received as a result of the WCAS portfolio companies’ purchases. Further, while negotiating the Agreement, the service provider suggested it would enter into the Agreement if one of WCAS’s portfolio companies signed a separate agreement to purchase services from the provider’s affiliate.
WCAS did not disclose these conflicts of interest to the fund investors, and could not effectively consent on behalf of its private equity fund clients. WCAS received $623,035 under the Agreement, and voluntarily stopped receiving fees after the SEC began its investigation.
The SEC order finds WCAS willfully violated Sections 206(2) and 206(4) of the Advisers Act, and Rule 206(4)-8 thereunder. Without admitting or denying the findings in the SEC’s order, WCAS consented to entry of the cease-and-desist order and a censure, and agreed to pay disgorgement of $623,035, prejudgment interest of $65,784, and a civil penalty of $90,000.
The SEC’s investigation was conducted by Brian Fitzpatrick and Mark D. Salzberg of the Enforcement Division’s Asset Management Unit.