Investing

SEC Settles Conflict of Interest Charges With New York Private Equity Firm

Chris Lange

Published: November 5, 2015 1:05 pm

Last Updated: January 13, 2020 5:29 pm

The U.S. Securities and Exchange Commission (SEC) announced that a New York-based private equity firm and four executives will settle charges regarding a failure to disclose conflicts of interest to a fund client and investors when fund and portfolio company assets were used for payments to former firm employees and an affiliated entity.

This SEC investigation found that Fenway Partners, principals Peter Lamm and William Gregory Smart, former principal Timothy Mayhew Jr. and Chief Financial Officer Walter Wiacek weren’t fully forthcoming to the client and investors about several transactions involving more than $20 million. This amount was in regard to payments out of fund assets or portfolio companies to an affiliated entity for consulting services and to Mayhew and other former firm employees for services they primarily provided while still working at Fenway Partners.

To settle the SEC’s charges without admitting or denying the order’s findings, Fenway Partners, Lamm, Smart and Mayhew agreed to jointly and severally pay disgorgement of $7.892 million and prejudgment interest of $824,471.10. They and Wiacek also agreed to pay penalties totaling $1.525 million. The total amount of $10,241,471.10 will be placed into a fund for harmed investors.

Andrew J. Ceresney, director of the SEC Enforcement Division, said:

Fenway Partners and its principals failed to tell their fund client that they rerouted portfolio company fees to an affiliate, and avoided providing the benefits of those fees to the fund client in the form of management fee offsets. Private equity advisers must be particularly vigilant about conflicts of interest and disclosure when entering into arrangements with affiliates that benefit them at the expense of their fund clients or when receiving payments from portfolio companies.

Marshall S. Sprung, co-chief of the SEC Enforcement Division’s Asset Management Unit, added:

Fenway Partners and its principals breached their fiduciary obligation to fully and fairly disclose conflicted arrangements to a fund client, and compounded the breach by omitting material facts about the arrangements when communicating with fund investors.

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