JH Partners, LLC, a private equity sponsor, recently agreed to settle SEC charges. According to the SEC the proceedings arose from negligent breaches of fiduciary duty by JHP, an investment adviser to several private equity funds (the “Funds”). According to the SEC:
- From at least 2006 to 2012, JHP and certain of its principals loaned approximately $62 million to the Funds’ portfolio companies to provide interim financing for working capital or other urgent cash needs. By doing so, JHP and its principals in certain cases obtained interests in portfolio companies that were senior to the equity interests held by the Funds.
- JHP also caused more than one Fund to invest in the same portfolio company at differing priority levels and/or valuations, potentially favoring one Fund client over another.
- JHP did not adequately disclose to the advisory boards of the affected Funds the potential conflicts of interest created by the undisclosed loans and cross-over investments.
- JHP failed to adequately disclose to, or obtain written consent from, its client Funds’ advisory boards when certain of their investments exceeded concentration limits in the Funds’ organizational documents.
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