Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

In a settled enforcement action, the SEC charged a private equity advisor, First Reserve Management, L.P., with conflicts of interest and other matters. First Reserve did not admit or deny the SEC’s findings.

The SEC noted First Reserve negotiated a legal fee discount from a law firm for itself for certain services based on the large volume of work the law firm performed for the funds advised by First Reserve, while the funds did not receive a discount on the same services. Because of the conflict of interest First Reserve faced as the beneficiary of the discount, First Reserve could not consent on behalf of the Funds to First Reserve’s practice of accepting the discount.

The charges also related to the allocation of expenses to funds without effective disclosure or receiving consent. The charges related to allocation of the following expenses:

  • Certain fees and expenses of two entities formed as advisers to a fund portfolio company that was a pooled investment vehicle, enabling First Reserve to avoid incurring certain expenses in connection with providing advisory services to the funds;
  • Certain premiums for a liability insurance policy covering First Reserve for risks not entirely arising from its management of the funds, where the funds’ governing documents provided that the funds only would pay insurance expenses relating to the affairs of the funds.