Are private-equity firms padding their fees?

A guy got nailed by the Feds a couple of years ago for padding the construction bills he was submitting to hedge fund clients of his architectural and contracting firm. He’d apparently gotten away with it for years before anyone noticed – with billions of dollars sloshing around it’s probably not uncommon for millions in expenses to just be glossed over or ignored.

But what happens when someone actually checks the line items and expenditure reports?

This has apparently happened as regulators began scrutinizing the multi-trillion dollar private equity industry for the first time as a result of Dodd-Frank.

Here’s Bloomberg News:

More than half of about 400 private-equity firms that SEC staff have examined have charged unjustified fees and expenses without notifying investors, according to a person with knowledge of the SEC’s findings who asked not to be named because the results aren’t public. While some of the problems appear to have resulted from error, some may have been deliberate, the person said.

The SEC’s review of the $3.5 trillion private-equity industry began after the 2010 Dodd-Frank Act authorized greater oversight of money managers, putting many firms under the agency’s scrutiny for the first time. By December 2012, examiners had found that some advisers were miscalculating fees, improperly collecting money from companies in their portfolio and using the fund’s assets to cover their own expenses.

One can only imagine what amazing things have been uncovered…


Bogus Private-Equity Fees Said Found at 200 Firms by SEC (BloombergNews)

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