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Alternative Market Briefing

SEC sanctions Apollo $52.7m for misleading expense disclosures

Wednesday, August 31, 2016

Matthias Knab, Opalesque:

From Sglawyers.com: The SEC sent a message to the private equity industry that it will severely punish managers for expense allocation conflicts of interest by sanctioning Apollo Management $52.7 million for misleading disclosures about portfolio monitoring fees. The SEC's Order against Apollo is one of several recent cases imposing large fines on private equity titans. In late - 2015, the SEC imposed $39 million in sanctions against Blackstone Management for similar portfolio monitoring fees issues. In mid - 2015, the SEC imposed $30 million in sanctions against KKR for misallocating broken-deal expenses between Fund investors and co-investors. And the Wall Street Journal has reported that the SEC is investigating private equity titan Silver Lake regarding portfolio monitoring fee acceleration disclosures. The message is clear: absent express disclosure of expenses raising conflicts of interest, the SEC will impose severe sanctions.

Apollo's primary violation was accelerating future portfolio monitoring fees upon the private sale or IPO of a portfolio company, without clearly disclosing this to investors before they committed capital to Apollo. Apollo entered into ten-year monitoring agreements with portfolio companies owned by Apollo-advised private equity funds to provide consulting services in exchange for annual fees. From late-2011 through May 2015, upon the private sale or IPO of a portfolio company, Apollo would terminate ......................

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