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SEC to Make Private Equity the New Focus of Investigations

The Securities and Exchange Commission has a new target: private equity shops.

A three-member panel from the SEC's asset management unit pointed to an increased likelihood of enforcement actions against private-equity firms in the near future, The Wall Street Journal reports.

The SEC’s asset management unit was created in 2010 within the agency's enforcement division and now has private equity “squarely in its enforcement crosshairs,” the Journal says, quoting remarks made at a Dow Jones Private Equity Analyst Outlook panel in New York City this week.

"I think that private equity law enforcement today is where hedge fund law enforcement was five or six years ago," Robert Kaplan, co-chief of the asset-management unit, said. In the past 12 months, the SEC's enforcement division brought about 50 cases against hedge fund managers.

In the past, the SEC has focused mostly on private equity issues involving "market-facing conduct" such as insider trading, but now the agency is shifting its focus to higher-risk areas, the regulator added.

If some of those Wharton MBA grads we mentioned in today's headlines have trouble finding positions at Private Equity firms, they might want to consider sending their resumes to the SEC, especially if they have experience at PE firms.

Also quoted in the Journal piece was Igor Rozenblit, a private-equity specialist in SEC's asset management unit, who said questions have come up almost every time he has conducted an examination of a private equity firm.

"Sometimes the issues are small and get resolved and sometimes the issues are larger," said Rozenblit.

One issue that is drawing SEC scrutiny centers around the calculation of fees and expenses, including broken-deal expenses, he said.

"You can't take for granted that your accounting department or your auditor is going to properly account for an expense," he said. "If you have a separately managed account and you're doing a deal together and there's a broken-deal expense, make sure that's accounted for correctly."

Valuations are drawing greater SEC scrutiny, too, especially when it comes to soliciting new funds, said Chad Earnst, assistant director of the asset management unit.

"We'll focus on whether there's a systematic and consistent way the valuations are applied," the Journal quoted Earnst saying.

AUTHORJanet Aschkenasy Insider Comment

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