In a recent settlement order (Order), the SEC alleged that a fund manager and its CEO misled investors about charging the “industry standard ‘2 and 20’” fees to their funds and engaged in improper inter-fund loans, cash transfers and loans to other affiliate funds. The Order serves as a reminder that, although fund managers may sometimes be exempt from reporting rules, they nevertheless must satisfy their own agreements surrounding interested-party transactions and structure them to mitigate potential conflicts of interest. They also must engage in marketing practices that accurately disclose information about their management fee collections, even in emails to prospective investors and on the funds’ website. This article details the alleged misconduct and terms of the Order, while also providing insights from industry experts about the most relevant aspects of the Order for PE sponsors and ways they can prevent their own practices from running afoul of the SEC. For coverage of other recent SEC enforcement actions, see “SEC Fines PE Sponsor $4.5 Million for Inconsistent Management‑Fee Offset Provisions and Calculations
” (Jan. 18, 2022); and “Adviser and CCO Sanctioned for Undisclosed Conflicts; Custody Rule Violations; and Deficient Policies and Procedures
” (Dec. 21, 2021).