The SEC’s Evolving Scrutiny of Private Equity Firms: KKR Hit with an Unprecedented Enforcement Action for Broken Deal Expense Misallocation

Abstract

Purpose

To explain and analyze SEC charges and settlement with Kohlberg Kravis Roberts & Co. (“KKR”) related to misallocation of broken deal expenses.

Design/methodology/approach

Provides background, including other similar SEC enforcement actions in relation to private equity and hedge funds; explains the regulatory violations in KKR’s broken deal allocation methodology and related disclosure; draws lessons and makes recommendations for private equity firms concerning the need for compliance and disclosure reviews and the benefits of remediation and cooperation.

Findings

This enforcement action and other similar ones represents a continuing SEC focus on fee and expense misallocation. It is also relevant to advisers to real estate and hedge fund complexes that face similar allocation issues.

Practical implications

Private equity firms and other advisers to private investment funds should re-evaluate their fee and expense allocation policies and procedures to be sure that they adhere to current regulatory and investor expectations.

Originality/value

Practical guidance from experienced securities enforcement and litigation and investment management lawyers.

Citation

Callahan, V.R., Fleishhacker, E.K., Holton, R., Kaplan, S.A., Lavin, K., Trager, M., Sylvester, M. and Vallabhaneni, P. (2015), "The SEC’s Evolving Scrutiny of Private Equity Firms: KKR Hit with an Unprecedented Enforcement Action for Broken Deal Expense Misallocation", Journal of Investment Compliance, Vol. 16 No. 4, pp. 39-42. https://doi.org/10.1108/JOIC-08-2015-0049