Three private equity advisors have agreed to pay almost $39 million dollars
to settle charges of disclosure failures brought against them, the Securities
and Exchange Commission announced on Wednesday.
The SEC issued an Order on Wednesday instituting proceedings against three
private equity fund advisers with the Blackstone Group for failing to
inform their customers of the benefits the advisors gained from accelerated
monitoring fees and the legal discounts the firm received, in violation
of securities industry regulations.
The three advisers named in the Order are Blackstone Management Partners,
Blackstone Management Partners III, and Blackstone Management Partners
IV. According to the SEC, the firms were not transparent in their dealings
with their clients. The Blackstone-advised equity funds allegedly bought
companies, and would charge those companies an annual fee – paid
to Blackstone, rather than to the fund itself. In essence, the fee created
a conflict of interest, according to the SEC. As a result, the SEC alleged
that Blackstone had breached its fiduciary duties to the funds.
Other SEC allegations included:
- Blackstone charged monitoring fees that covered the cost of advisory and
- Blackstone advanced future monitoring fees to pay off some management fees.
- Blackstone did not tell clients of the accelerated fees until after they
- Blackstone violated the Investment Advisers Act of 1940 when it did not
adopt and implement written policies and procedures reasonably designed
to prevent violations of the Investment Advisers Act.
Neither admitting nor denying the charges, Blackstone agreed to pay $26.2
million in disgorgement with $2.6 million in prejudgment interest. They
will also pay a $10 million dollar civil penalty. According to reports,
$28.8 million is reserved for investors who claimed losses.