WL Ross ponies up $14.1m from fee disclosure issues

A $2.3m penalty enforced by the SEC this week follows some $11.8m in management fees and interest that the firm has already returned to investors.

Distressed-focused private equity firm WL Ross & Co has agreed to pay a $2.3 million civil penalty issued by the Securities and Exchange Commission, the SEC announced in a statement this week, as reported by PEI's sister publication pfm.

The regulator charged WL Ross for allegedly failing to properly disclose the method used to allocate certain fees it charges investors.

WL Ross voluntarily revised its fee allocation methodology after bringing it to the attention of the SEC as part of an examination conducted by the regulator in 2014. The firm then applied this revised methodology retroactively to calculate how much it would return to investors, and voluntarily reimbursed approximately $11.8 million in management fees and interest to the funds involved.

WL Ross had initially agreed with its investors to reduce its quarterly management fees by between 50 percent and 80 percent of any transaction fee it had collected the previous quarter, the SEC said. The transaction fees were payments from portfolio companies for advisory and other services WL Ross provided. But the limited partner agreements did not specify exactly how the transaction fees would be allocated when there were several WL Ross funds and co-investors who had investments in the same portfolio company.

Between 2001 and 2011, WL Ross used a transaction fee allocation methodology that enabled it to keep a “significant” part of the transaction fees for itself, the SEC said.

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