Lightyear Capital has paid $400,000 to settle claims that it overcharged investors in its flagship funds for 16 years, following an SEC announcement.
From 2000 to 2016, investors in Lightyear's flagship funds paid more than their fair share of expenses, like those associated with broken deals, legal services and consulting fees, when the burden should have been shared by co-investors and employee co-investment funds, according to a Dec. 26 announcement from the Securities and Exchange Commission. The flagship funds investors were charged roughly $338,000 more than they should have been over that time.
Moreover, from 2010 to 2015, Lightyear would often enter into advisory agreements with portfolio companies whereby Lightyear provided services to the company in exchange for advisory fees, the SEC said.
The advisory fees received by Lightyear from portfolio companies were supposed to offset the management fees paid by the flagship funds, but from 2010 to 2012, Lightyear entered into fee-sharing agreements with certain co-investors regarding three of the flagship funds' portfolio companies, the SEC added. Lightyear did not disclose the fee-sharing agreements, which benefited the co-investors at the expense of the flagship funds. As a result, from 2010 through 2015, the flagship funds did not receive about $1 million in management fee offsets, according to the SEC.
Following a 2016 SEC exam, Lightyear fully reimbursed its flagship funds investors going back to 2001, with interest, the SEC said.
Lightyear, which had about $2.27 billion in regulatory assets under management as of Dec. 31, 2017, did not admit to or deny any of the SEC's findings. Through a spokesman, the private equity firm declined comment.