The SEC's Evolving Scrutiny of Private Equity Firms: KKR Hit with an Unprecedented Enforcement Action for Broken Deal Expense Misallocation. Issue 4 (2nd November 2015)

• Record Type: Journal Article
• Authors: Callahan, Veronica Rendon; Fleishhacker, Ellen Kaye; Holton, Robert; Kaplan, Steven A.; Lavin, Kevin; Trager, Michael; Sylvester, Mark; Vallabhaneni, Pratin
• Is Part Of: Journal of investment compliance. Volume 16:Issue 4(2015)
• Page Start: 39
• Page End: 42
• Publication Date: 2015-11-02
• Subjects: Disclosure -- Investment adviser -- Compliance -- Securities and Exchange Commission (SEC) -- Private equity fund -- Fee and expense allocation; Institutional investments -- Law and legislation -- Periodicals; Securities -- Periodicals; 332.6
• DOI: 10.1108/JOIC-08-2015-0049
• Languages: English
• ISSNs: 1528-5812

Abstract

Abstract : Purpose: – To explain and analyze SEC charges and settlement with Kohlberg Kravis Roberts & Co. ("KKR") related to misallocation of broken deal expenses. Design/methodology/approach: – Provides background, including other similar SEC enforcement actions in relation to private equity and hedge funds; explains the regulatory violations in KKR's broken deal allocation methodology and related disclosure; draws lessons and makes recommendations for private equity firms concerning the need for compliance and disclosure reviews and the benefits of remediation and cooperation. Findings: – This enforcement action and other similar ones represents a continuing SEC focus on fee and expense misallocation. It is also relevant to advisers to real estate and hedge fund complexes that face similar allocation issues. Practical implications: – Private equity firms and other advisers to private investment funds should re-evaluate their fee and expense allocation policies and procedures to be sure that they adhere to current regulatory and investor expectations. Originality/value: – Practical guidance from experienced securities enforcement and litigation and investment management lawyers.