First Reserve Management agreed to pay $3.5 million to settle SEC conflict-of-interest charges that the private equity firm allocated certain fees, expenses and insurance premiums to some of its funds without disclosing it or receiving effective consent from the funds' limited partners, according to an SEC cease and desist order.
In addition, First Reserve negotiated a legal fee discount from a law firm for First Reserve, but the funds did not receive a discount for the same services, the order said.
First Reserve funds that are involved include First Reserve Fund X, First Reserve Fund XI, First Reserve Fund XII, First Reserve Fund XII-A Parallel Vehicle and First Reserve Fund XIII.
So far, the Securities and Exchange Commission is not imposing an additional $3.5 million civil penalty against First Reserve due to the firm's cooperation in the investigation, the order stated. However, if the SEC's enforcement division later learns First Reserve “knowingly provided materially false or misleading information or materials” to the SEC or in a related proceeding, the SEC's enforcement division will petition to ask for an order directing First Reserve to pay the additional civil penalty.
This is not the only matter involving First Reserve and alleged conflicts of interest this year. In August, a proposed recapitalization of the $7.8 billion First Reserve Fund XI private equity fund by Pantheon Ventures and Intermediate Capital Group was terminated because of the low level of existing limited partners wishing to sell. A fund investor, the $301.5 billion California Public Employees' Retirement System, Sacramento, objected to the proposed restructuring of the underperforming 2006 energy fund, citing inherent conflicts of interest.
Julie Oakes, First Reserve spokeswoman, declined to comment.