US buyout firm Blackstone Group has agreed to pay about $39m to Securities and Exchange Commission (SEC) for failing to disclose all the fees arrangements to investors.
The SEC accused that three of the firm’s private equity fund advisers failed to inform investors fully about financial benefits the advisers obtained from accelerated monitoring fees and separate discounts on legal fees.
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Under the settlement, nearly $29m of the settlement will be distributed to affected fund shareholders.
The SEC alleged that Blackstone Management Partners, Blackstone Management Partners III and Blackstone Management Partners IV did not inform investors about the acceleration of monitoring feeds paid by fund-owned portfolio companies.
The SEC said that the payments Blackstone received essentially reduced the value of the portfolio companies prior to sale, to the detriment of the funds and their investors.
The regulator also alleged that Blackstone failed to disclose a legal fee arrangement providing it with a much greater discount on its legal fees than the discount received by the funds.
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By GlobalDataAccording to the SEC’s order, fund investors were not informed about a separate fee arrangement that provided Blackstone with a much greater discount on services by an outside law firm than the discount that the law firm offered to the funds.
Blackstone failed to make proper disclosures and neglected to adopt and implement reasonably designed policies and procedures.
The firm agreed to disgorge $26.2m of ill-gotten profits and prejudgment interest of $2.6m and agreed to pay a $10m civil penalty.
Blackrock neither admitted nor denied the findings of the SEC.
SEC division of enforcement Director Andrew Ceresney said: "Full transparency of fees and conflicts of interest is critical in the private equity industry and we will continue taking action against advisers that do not adequately disclose their fees and expenses, as Blackstone did here."
SEC enforcement division’s asset management unit co-chief Julie Riewe said: "As the beneficiary of the accelerated monitoring fees, Blackstone violated its fiduciary duty by failing to properly disclose the fees.
"Blackstone further breached its fiduciary duty by choosing to negotiate a legal fee arrangement with greater benefits for itself than the funds it advised, without properly disclosing the arrangement."
