The SEC has asked asset management company Blackstone about the accelerated monitoring fees it charged portfolio companies in the past, according to the company’s securities filing. The SEC has also asked for information about disparate vendor discounts.
Monitoring fees are widespread in the private equity industry. The contracts at issue were typically long-term deals that provided for a lump sum payment if the portfolio company was sold. The SEC contends that the termination fees for the contract were poorly disclosed. Blackstone expanded its disclosure of the practice following a 2011-12 SEC exam and limited the practice last year. The company is in talks with the SEC to resolve the investigation, according to the filing.
The issue of the monitoring fees charged by private-equity firms came to light in early April when a SEC whistleblower filed a retaliation lawsuit against another firm. He learned about the SEC’s interest in these types of cases because of a 2014 speech by then Director of the Office of Compliance Inspections and Examination, Andrew Bowden.
There is a separate IRS whistleblower claim on this issue as well. The IRS tip contends that monitoring fees are disguised dividends and the companies failed to pay the appropriate amount of taxes on them. The group behind the tip examined 61 buyout deals with acceleration payments resulting in a total of $1.3 billion in fees.
If you have questions about the SEC whistleblower law or have evidence of misconduct by a company, one of our SEC whistleblower attorneys can assist you. Please contact us or call 1-800-590-4116 to speak to a lawyer at McEldrew Young Purtell Merritt.