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SEC Charges RI Pension Investment Firm with Failure to Disclose Conflicts

Thursday, November 05, 2015

 

Fenway Partners, the private equity firm in which the Rhode Island State Investment Commission (SIC) has a $30 million commitment, was charged by the U.S. Securities and Exchange Commission this week for failing to disclose conflicts of interest.  

Forbes columnist and former SEC lawyer Edward Siedle warned of Rhode Island's ties to Fenway Partners in his report "Double Trouble" in June 2015.

Siedle wrote, "According to the Wall Street Journal, Fenway Partners was recently warned that U.S. securities regulators may take action against the New York private equity firm over its disclosure of expenses, fees and other financial information. Fenway told pension funds and other investors in March that the Securities and Exchange Commission had sent it a Wells notice, which the agency uses to alert people and firms that it may take action against them, such as bringing a civil lawsuit."

The report was Siedle's second, following his report on Rhode Island investments entitled "Wall Street's License to Steal" in 2013.

Regarding his most recent investigation, Siedle wrote, "This report is a lot about bringing Rhode Islanders up to speed on what's going on, when SEC has said half of private equity managers are breaking the law."

Fenway Partners founder Richard Dresdale gave $1,000 to Friends of Jim Bennett in 2002, prior to changes in campaign finance which prevented investment firms from making campaign contributions. 

SEC Charges

The SEC made the following statement this week:

An SEC investigation found that Fenway Partners LLC, principals Peter Lamm and William Gregory Smart, former principal Timothy Mayhew Jr., and chief financial officer Walter Wiacek weren’t fully forthcoming to the client and investors about several transactions involving more than $20 million in payments out of fund assets or portfolio companies to an affiliated entity for consulting services and to Mayhew and other former firm employees for services they primarily provided while still working at Fenway Partners.

“Fenway Partners and its principals failed to tell their fund client that they rerouted portfolio company fees to an affiliate, and avoided providing the benefits of those fees to the fund client in the form of management fee offsets,” said Andrew J. Ceresney, Director of the SEC Enforcement Division. “Private equity advisers must be particularly vigilant about conflicts of interest and disclosure when entering into arrangements with affiliates that benefit them at the expense of their fund clients or when receiving payments from portfolio companies.”

To settle the SEC’s charges without admitting or denying the order’s findings, Fenway Partners, Lamm, Smart, and Mayhew agreed to jointly and severally pay disgorgement of $7.892 million and prejudgment interest of $824,471.10.  They and Wiacek also agreed to pay penalties totaling $1.525 million. The total amount of $10,241,471.10 will be placed into a fund for harmed investors.  

 

Related Slideshow: RI Public Pension Reform: Wall Street’s License To Steal

See the key findings from Forbes' columnist Edward Siedle, who unveiled his investigative report into the RI pension system, "License to Steal," in October 2013.  

"The Employee Retirement System of Rhode Island has secretly agreed to permit hedge fund managers to keep the state pension in the dark regarding how its assets are being invested; to grant mystery hedge fund investors a license to steal, or profit at its expense using inside information; and to engage in potentially illegal nondisclosure practices," said Siedle.  

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