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SEC Charges Former Private Equity Firm Partner with Defrauding Clients

Client Alert

Authors: John M. Ford and Ryan F. Helmrich

10/27/2017
SEC Charges Former Private Equity Firm Partner with Defrauding Clients

In an offshoot of its enforcement action against Apollo Management L.P. (Apollo) last year, the Securities and Exchange Commission (SEC) on October 25 charged a former senior partner at Apollo with defrauding his fund clients by improperly billing them for approximately $290,000 in personal expenditures. The SEC’s complaint alleges that the individual used client money to fund extravagant lifestyle expenses and falsified receipts and expense reports, even after he was admonished by Apollo’s CFO on two prior occasions for similar conduct.

Despite reaching a $52.7 million settlement with Apollo last year, the SEC’s pursuit of an individual demonstrates not only its ongoing focus on private equity fund adviser disclosure of fee and expense allocations, but also its continued aversion to recidivist behavior. Additionally, because Apollo’s policies and procedures required that any employee expenses charged to clients be “necessary, reasonable and appropriately documented,” the categories and specific examples of inappropriate expenses cited in the complaint may be instructive of where the SEC staff draws the line in gray areas. Finally, the statutory lynchpin in the SEC’s complaint is the allegation that the conduct constitutes a “breach of fiduciary duty,” which is not curable by disclosure.

More Information

October 25, 2017: SEC Press Release and Complaint against former Apollo partner.

August 23, 2016: SEC Press Release and Order against Apollo.

The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.