SEC Charges Private Equity Fund Adviser for Overcharging Expenses
Dec. 18, 2018
File No. 3-18935
December 17, 2018 - The Securities and Exchange Commission entered an order today finding that registered investment adviser NB Alternatives Advisers LLC (NBAA) improperly allocated approximately $2 million of compensation-related expenses to three private equity funds it advised.
According to the SEC's order, the three private equity funds - which are known as the Dyal Funds - invest in asset managers, such as the advisers to hedge and mutual funds, in exchange for a percentage of the managers' profits. NBAA established a platform of employees to provide advisory and consulting services to those asset managers, and the Dyal Funds were responsible for paying the expenses associated with the use of that platform by the asset managers. Some of the employees in that platform sometimes performed work that was unrelated to providing advisory and consulting services to asset managers. The SEC's order found that NBAA failed to ensure that the Dyal Funds were charged only for time the platform employees spent providing services to the asset managers, and instead allocated all of those employees' compensation expenses to the Dyal Funds. This was inconsistent with the Dyal Funds' governing documents and as a result, from 2012 through 2016, the Dyal Funds paid approximately $2 million for compensation-related expenses that were NBAA's responsibility.
Without admitting or denying the findings, NBAA has consented to the entry of the Order finding that it violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940, and Rules 206(4)-7 and 206(4)-8 thereunder. NBAA agreed that it must cease and desist from further violations. NBAA will disgorge $2,073,988 and pay prejudgment interest of $284,620, which NBAA is required to distribute to harmed investors. NBAA also will pay a civil monetary penalty of $375,000.
The SEC's investigation was conducted by Karen E. Willenken and Brian Fitzpatrick, and supervised by Panayiota K. Bougiamas, of the Asset Management Unit.