Blackstone has agreed to pay $39 million to settle charges that it failed to properly disclose fees to investors.
According to the US Securities and Exchange Commission (SEC), the private equity giant did not inform investors about gains from discounts on legal fees and accelerated monitoring fees collected from portfolio companies prior to their initial public offering.
“Full transparency of fees and conflicts of interest is critical in the private equity industry and we will continue taking action against advisers that do not adequately disclose their fees and expenses.”The practice of taking a lump sum for future consulting work “essentially reduced the value of the portfolio companies prior to sale, to the detriment of the funds and their investors,” the SEC said.
Furthermore, the SEC found Blackstone negotiated a legal fee deal that was more beneficial for the $333 billion firm than the funds it advised, “without properly disclosing the arrangement.”
“Full transparency of fees and conflicts of interest is critical in the private equity industry and we will continue taking action against advisers that do not adequately disclose their fees and expenses, as Blackstone did here,” said Andrew Ceresney, director of the SEC’s division of enforcement.
The regulator also claimed that Blackstone breached its fiduciary duties through these fee disclosure irregularities.
Blackstone neither admitted nor denied the SEC’s allegations, and said in a statement that it had “voluntarily made changes to the applicable practices before this inquiry was begun.”
It also claimed the issues investigated by the SEC date back to more than 10 years ago when acceleration of monitoring fees was “a common industry practice.”
“Each accelerated fee was, however, as the SEC order acknowledges, disclosed when received and our limited partner advisory committee did not exercise its right to object,” Blackstone’s spokesperson added.
Blackstone’s settlement follows KKR’s $30 million agreement with the SEC in June.
The firm, charged with violating fiduciary duty by charging clients for its own expenses on failed buyout deals, was the first mega-private equity firm to face the SEC’s probe into fee disclosures.
Related: From All Sides, Pressure Mounts Over Private Equity Fee Practices, KKR Fined $30M for Breach of Fiduciary Duty, Pension Funds Question KKR’s Fee Transparency