U.S. regulators found illegal collections of fees or severe compliance shortfalls in more than half of the private-equity firms it has examined since 2012, a signal the industry could face tougher oversight or sanctions.
“By far, the most common observation our examiners have made when examining private-equity firms has to do with the adviser’s collection of fees and allocation of expenses,” Drew Bowden, director of the SEC’s office of compliance inspections and examinations, said today in a speech at the Private Fund Compliance Forum in New York. “We have identified what we believe are violations of law or material weaknesses in controls over 50 percent of the time.”
The SEC’s review of the $3.5 trillion private-equity industry started after the 2010 Dodd-Frank Act authorized greater oversight of money managers, putting many firms under regulatory scrutiny for the first time. Private-fund managers also were required to file confidential reports allowing regulators to monitor activity that could be a threat to the broader economy.
The agency, which created a special unit of examiners to inspect firms with more than $150 million in assets, has reviewed more than 150 private-equity firms since October 2012. The SEC intends to have examined 275 of the firms by year-end, Bowden said.