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By Mark Buckley-Jones, director at RQC Group, a US compliance firm.

In a time of notably increased rule-making and examination activity by the SEC, two recent enforcements illustrate the value of investing in reputable compliance support.

The SEC recently charged a private equity firm for inadequate disclosure of fees paid to an affiliate, and five advisory firms have been charged in separate actions for custody rule violations.

Fee and Expense Disclosures

In the first case, the SEC charged private equity firm Prime Group Holdings LLC ("Prime Group") for failing to adequately disclose millions of dollars of real estate brokerage fees that were paid to a real estate brokerage firm owned by its CEO.

The SEC's order alleges that Prime Group launched an investment fund to purchase self-storage real estate properties, with the fund relying on deal teams made up of Prime Group's employees and independent contractors to find and acquire properties. The deal teams' expenses and compensation, as well as other costs of Prime Group's operations, were paid, in part, from a brokerage fee paid by the fund. The fund paid such brokerage fees, nearly $18 million in total, to a real estate brokerage firm that was wholly owned by Prime Group's CEO.

Prime Group failed to adequately disclose that an affiliate would be receiving these brokerage fees, and as a result the SEC's order finds that Prime Group made misleading statements concerning fees and conflicts o......................

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