SEC Charges RI Pension Investment Firm with Failure to Disclose Conflicts

GoLocalProv News Team

SEC Charges RI Pension Investment Firm with Failure to Disclose Conflicts

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."

GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST

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.  

RI Public Pension Reform: Wall Street's License To Steal

Treasurer’s Lack of Transparency

 
"There has been a sinister pall of secrecy regarding fundamental investment information orchestrated by state officials and aided by key investment services providers. "

So-Called Pension Reform Scheme Permanently Reduces Benefits To Retirees

"Whether retirees receive any COLA will depend upon both ERSRI’s funding level and the Fund’s actual investment returns—both of which are volatile, unpredictable and subject to manipulation by elected officials and others. The manipulation of both of these key goalposts has already begun. "

SEC Should Investigate ERSRI’s Failure to Disclose Skyrocketing Investment Expenses 

 
"The Treasurer has intentionally withheld information about soaring investment fees which is material in assessing both whether ERSRI should invest in costly alternative investments and whether benefit cuts are necessary to improve pension funding."

Lose-Lose: Alternative Investments Both Reduce Returns and Increase Risk 

 
"The Treasurer’s representations regarding the level of risk related to ERSRI’s hedge fund investments are wholly inconsistent with the hedge fund managers’own words."

ERSRI Agrees To Be Kept In The Dark, Grants Mystery Investors Licenses to Steal and Consents To Potential Nondisclosure Illegalities 

 
"The outrageous nondisclosure policies detailed in the hedge fund offering documents cause these investments to be, at a minimum, inherently impermissible for a public pension, such as ERSRI, if not illegal."

Heightened Risks Related To Hedge Fund Offshore Regulation And Custody

 
"There is no evidence the State Investment Commission was aware of, or ever considered, the unique risks related to foreign regulation of hedge funds."

SEC Should Investigate Questions Surrounding ERSRI’s Point Judith Venture Investment

 
"The Treasurer has made numerous public statements regarding the performance of the Point Judith II fund she formerly managed and sold to ERSRI, as well as released summary performance figures which are strikingly divergent. [...] In order to prevent any possible confusion or misleading of investors, the SEC should investigate Point Judith II performance claims."

Rhode Island Ethics Commission Opinion And “Blind Trust” Fail to Address Conflicts Regarding Point Judith Investment

 
"The Treasurer notably failed to mention in her letter to the Ethics Commission that the state was a limited partner in the Point Judith fund and may have broad rights in the fund that conflict with hers. Further, she may have special rights that permit her to profit at the state’s expense."

SEC Should Investigate ERSRI Investment Consultant Conflicts, Payments From Money Managers

 
"The investment consultant retained to provide objective advice regarding alternatives, Cliffwater LLC, has disclosed in its SEC filings that it receives compensation from investment managers it recommends or selects for its clients, including Brown Brothers Harriman which manages $272 million for ERSRI."

“Pay To Play” Placement Agent Abuses at ERSRI

 
"Rather than undertake an independent investigation in response to an SEC inquiry, ERSRI relied upon its then investment consultant, PCG, for objective advice regarding controversial placement agent fees—at a time when PCG itself was embroiled in a national pay-to-play scandal."
Selected Image

Enjoy this post? Share it with others.