Energy Capital Partners agreed to settle Securities and Exchange Commission charges that it allocated undisclosed, disproportionate expenses to one of its private equity funds.
ECP agreed to pay a $1 million penalty, follow a cease-and-desist order and be censure to settle the SEC charges, and the firm has voluntarily paid back more than $3.3 million to the fund, according to an SEC order released Tuesday. ECP did not admit to or deny the SEC's findings.
ECP led an investment consortium to acquire the stock of "Target Portfolio Company A", a publicly traded independent power producer, in a deal that closed in March 2018, according to the SEC order. Energy Capital Partners III, a private equity fund managed by ECP, planned to take Target Portfolio Company A private.
ECP agreed that third-party co-investors would not have to bear expenses related to a credit facility used to finance the transaction, but it then allocated Energy Capital Partners III more than its pro rata share of the expenses based on the fund's equity commitment to the transaction, the SEC said.
The fund was allocated about 27% of the Target Portfolio Company A equity investment, but was allocated about 39% of the credit facility commitment fees, the SEC added.
"The determination to allocate a disproportionate share of expenses to Fund III resulted in Fund III paying approximately $3.3 million more in expenses than it would have paid had it been allocated its pro rata share based on ownership of Target Portfolio Company A," the SEC order said.
The SEC's order also found that, under the fund's organizational documents, these expenses should have either been disclosed or not allocated in this manner.
"Private equity fund advisers must follow their own agreements and ensure that investors do not pay more in fees or expenses than they bargained for," said Adam S. Aderton, co-chief of the SEC enforcement division's asset management unit, in a news release. "This resolution ensures that investors are repaid, while reaffirming the SEC's commitment to focus on misconduct in the private fund space, including that involving co-investor issues."
ECP did not immediately respond to a request for comment.
