SEC Fines PE Shop for Overcharging Clients
The Securities and Exchange Commission reached a settlement agreement with TZP Management Associates over allegations that the firm had charged its private fund clients more than $500,000 in excess management fees.
The SEC slapped the lower middle-market private equity shop with $1.3 million in total civil penalties and disgorgement for the alleged violations of the Advisers Act, while also imposing sanctions and a cease-and-desist order on the firm, according to an administrative order released Friday.
The agency claims the $2.4 billion TZP – whose clients include institutional investors such as pension funds, university endowments and high-net-worth individuals across the firm’s nine funds – breached its fiduciary duty in the way it calculated management fees associated with compensation the firm received from its portfolio companies.
The case underscores the SEC’s focus on private fund fee and expense practices, Cynthia Kelly, STP Investment’s managing director of compliance, said in an email.
“Many firms could fall into similar traps ‘by mistake’ if policies aren’t detailed, compliance reviews aren’t robust, or disclosures don’t match actual practices,” she said. “It’s a reminder that advisers need to ensure fee offsets are consistent with fund documents and subject to regular compliance testing, as these are areas where inadvertent errors can occur.”
Read more from Cynthia and other experts in FundFire.
