The Securities and Exchange Commission has filed charges against Fenway Partners LLC and four of its executives. According to the regulator, when fund and portfolio company assets were used to pay ex-firm employees and an entity to which the New York-based private equity firm is affiliated the parties did not disclose to a fund client and investors that there were conflicts of interest.
The SEC says that Fenway Partners, principals William Gregory Smart and Peter Lamm, CFO Walter Wiacek, and ex-principal Timothy Mayhew Jr. did not fully disclose to the client and investors that a number of transactions involving over $20M in payments had come out of portfolio companies or fund assets. SEC Enforcement Division Director Andrew Ceresney said that the investors and the fund client were not told that the firm and its principals had rerouted the portfolio company fees to affiliate Fenway Consulting Partners, LLC for services and that they failed to give the fund client the benefits of those fees via fee offsets for management.
Also, according to the SEC’s order, which institute a resolved administrative proceeding, Fenway Partners went into contracts with the certain portfolio companies that were held by Fenway Capital Partners Fund III L.P. Through these contracts, the companies paid Fenway Consulting Partners the fees at issue.
Beginning in December 2011, the private equity fund and the executives caused specific portfolio companies to end payment duties to Fenway Partners and go into consulting agreements with the affiliate, which provided similar services as the portfolio companies and usually through the same employees. However, the fees of $5.74 million that it received were not offset against the management fees that the fund paid Fenway Partners.
Meantime, contends the Commission, Wiacek, Smart, Lamm, and the private equity firm asked fund advisers for $4M related to an investment in a portfolio company without disclosing that Fenway Consulting would use $1M. Also, Mayhew, Lamm, and Fenway Partners caused two ex-employees and Mayhew to get $15M in incentive compensation from the sale of a portfolio company for services that they performed while they were still with the firm. These payments were not disclosed in financial statements given to investors.
To settle, Fenway Partners, Mayhew, Smart, and Lamm are agreeing to disgorgement of over $7.9M and pay prejudgment interest of over $800K. Along with Wiacek they consented to pay $1.525 in penalties. Over $10M will go to a fund for investors that sustained harm.
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Read the SEC Order (PDF)