Four private equity fund advisors affiliated with Apollo Global Management agreed Tuesday to pay $52.7 million to the Securities and Exchange Commission for misleading fund investors about fees and a loan agreement and failing to supervise a senior partner who charged personal expenses to the funds.
An SEC investigation found that the Apollo advisors failed to adequately disclose the benefits they received to the detriment of fund investors by accelerating the payment of future monitoring fees owed by the funds’ portfolio companies upon the sale or initial public offering of those companies.
“The lump sum payments received by the Apollo advisors essentially reduced the portfolio companies’ value prior to their sale or IPO and reduced amounts available for distribution to fund investors,” the SEC states.
Apollo was in line to buy some of the assets of beleaguered RCS Capital, founded by real estate mogul Nicholas Schorsch.
The SEC also found that one of the Apollo advisors failed to disclose certain information about interest payments made on a loan between the advisor’s affiliated general partner and five funds.
“The purpose of the loan was to defer taxes on carried interest due the general partner,” the SEC says. “The loan agreement obligated the general partner to pay interest to the funds during the course of the loan, and the funds’ financial statements disclosed that interest was accruing as an asset of the funds. But that interest was instead ultimately allocated solely to the general partner, which made the disclosures in the financial statements misleading.”
Andrew Ceresney, director of the SEC Enforcement Division, said in a statement that “a common theme in our recent enforcement actions against private equity firms is their failure to properly disclose fees and conflicts of interest to fund investors.”
Investors in Apollo funds “were not adequately informed about accelerated monitoring fees and separately allocated loan interest, and therefore were unable to gauge their impact on their investments.”