Equity Firm, Execs Settle First-of-a-Kind Disclosure Case

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By Richard Hill

Nov. 3 — New York-based private equity firm Fenway Partners LLC and four current or former executives agreed Nov. 3 to pay $10.241 million to settle first-of-their kind Securities and Exchange Commission allegations they failed to disclose conflicts of interest arising from their use of a client fund's assets.

Fenway and the four executives allegedly paid an affiliated entity for consulting services using assets of the fund or its portfolio companies. They also allegedly used the assets—more than $20 million in total—to pay a former principal and other former employees for services performed primarily when they still were with Fenway.

SEC Focus

“Investment advisers violate federal securities laws when they don't disclose transactions with affiliates that give rise to conflicts of interest,” SEC Enforcement Director Andrew Ceresney said in a conference call with reporters. The case reflects the SEC's “significant focus” on private equity firms in the last several years, he said, adding that more cases are “in the pipeline.”

The move—and the prospect of additional cases—was forecast late last month by SEC enforcement officials at a Practising Law Institute gathering.

Fenway Partners and the individual respondents—Peter Lamm, William Gregory Smart, Timothy Mayhew Jr. and Walter Wiacek—settled the case without admitting or denying the allegations. Lamm, Smart and Mayhew owned and controlled Fenway and principally owned and controlled Fenway Consulting. Wiacek was Fenway's vice president, chief financial officer and chief compliance officer.

The total amount of the disgorgement and sanctions—$10,241,471—will be distributed to affected investors.

To contact the reporter on this story: Richard Hill in Washington at rhill@bna.com

To contact the editor responsible for this story: Phyllis Diamond at pdiamond@bna.com

The order in the case can be seen at http://www.sec.gov/litigation/admin/2015/ia-4253.pdf.